Informe Presupuesto DoD

AGENCY FINANCIAL
REPORT
FISCAL YEAR 2019
Service members render honors following wreath laying ceremony at Arlington National Cemetery, May 27, 2019
DoD photo by Lisa Ferdinando
Department of Defense at a Glance www.defense.gov
BRIEF HISTORY MISSION

• The Army, Navy, and Marine Corps were To provide the military forces needed to deter war
established in 1775, in concurrence with the and protect the security of our country.
American Revolution.
• The War Department was established in 1789, HEADQUARTERS
and was the precursor to what is now the
Department of Defense. The Department of Defense is headquartered at
• The Coast Guard (part of the Department of the Pentagon, located in Arlington, Virginia. The
Homeland Security during peace time) was Pentagon is one of the world’s largest office
established in 1790. buildings – it has 17.5 miles of hallways, three
times the floor space of the Empire State
• The Department of the Navy was established Building, and houses about 26,000 employees.
in 1798. Pentagon Tour information.
• The National Security Act of 1947 renamed
the Department of War as the Department of
EMPLOYEES
the Army, created the Department of the Air
Force, and unified command of the Military The Department of Defense is the country’s
Departments under the “National Military largest employer, with more than 2.1 million
Establishment” headed by a Secretary of Military Service members and over 770 thousand
Defense. civilian employees.
• The Department of Defense Reorganization
Act of 1958 established the Combatant For information on DoD Humanitarian Efforts, go to
Commands. DoD Helping Hands.
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About the Department of Defense Agency Financial Report
The United States Department of Defense (DoD) Agency Financial Report (AFR) for Fiscal Year (FY) 2019
provides an overview of the Department's financial information as well as preliminary summary-level performance
results. The AFR demonstrates to the Congress, the President, and the public the Department's commitment to its mission
and to accountability and stewardship over the resources entrusted to it. This report satisfies the reporting requirements
contained in the following legislation:
• Federal Managers' Financial Integrity Act(FMFIA) • Reports Consolidation Act of 2000 - permits
of 1982 - requires ongoing evaluations and reports agencies to consolidate any statutorily required
of the adequacy of internal accounting and reports into a single annual report and requires
administrative controls; certain information be contained in the consolidated
report;
• Chief Financial Officers (CFO) Act of 1990 -
established the position of Chief Financial Officer • Accountability of Tax Dollars Act (ATDA) of 2002
and requires audited financial statements for each - expands the requirement for audited financial
major executive agency; statements to additional executive agencies;
• Government Management Reform Act (GMRA) of • Improper Payments Information Act (IPIA) of
1994 - delegates authority to the Director of the 2002, as amended by Improper Payments
Office of Management and Budget to prescribe the Elimination and Recovery Act (!PERA) of 2010
form and content of the financial statements and to and the Improper Payments Elimination and
identify the components of executive agencies that Recovery Improvement Act (!PERIA) of 2012 -
will be required to have audited financial requires agencies to report on their efforts to
statements; identify, prevent, reduce, and recover improper
payments;
• Federal Financial Management Improvement Act
(FFMIA) of 1996 - requires financial statement • Fraud Reduction and Data Analytics Act of 2015 -
audits to assess the compliance of an agency's requires agencies to report on progress m
financial management systems with Federal implementing financial and administrative controls
requirements, Federal accounting standards, and the related to fraud, identifying risks and vulnerabilities
United States Government General Ledger; to fraud, and establishing steps to curb fraud.
Pursuant to Office of Management and Budget (0MB) Circular No. A-136, Financial Reporting Requirements,
the Department produces two separate annual reports in lieu of a combined Performance and Accountability Report
(PAR)
• An AFR, published in November 2019, which focuses primarily on financial results and a high-level discussion of
performance results, and
• An Annual Performance Report (APR), published in February 2020, which details DoD strategic goals and
performance measures and results.
The estimated cost of this report or study for the

Department of Defense is approximately $436,000
in Fiscal Years 2019 - 2020. This includes
$158,000 in expenses and $279,000 in DoD labor.
Generated on 2019Nov14 RefID: 8-A46861C

Each section cover of this
report features a picture
and story about Military
Service members from
their respective Service’s
website.
Click the pictures for

their full stories.
Table of Contents
Message from the Secretary of Defense ..................................................... v
MANAGEMENT’S DISCUSSION & ANALYSIS

The Management’s Discussion and Analysis (MD&A) section provides a
high-level overview of the Department’s programmatic and financial
performance. This section includes a summary of the Department’s mission
and structure, the current status of financial management systems, compliance
with laws and regulations, and management assurances regarding internal
controls.
Mission Overview ............................................................................. 1

Organizational Structure ................................................................... 2
Resources .......................................................................................... 8
Performance Overview .................................................................... 14
Forward-Looking Information ......................................................... 24
Financial Highlights and Analysis ................................................... 27
Audit Overview ............................................................................... 35
Statement of Assurance ................................................................... 38
Management Assurances ................................................................. 39
Systems Compliance and Strategy ................................................... 43
Legal Compliance ............................................................................ 47
FINANCIAL SECTION
Message from the Under Secretary of Defense (Comptroller)/
Chief Financial Officer ............................................................ 51
Independent Auditor’s Report ......................................................... 53
Principal Financial Statements and Notes........................................ 75
Required Supplementary Stewardship Information ....................... 165
Required Supplementary Information ........................................... 168
OTHER INFORMATION
Management Challenges ................................................................ 175
Summary of Financial Statement Audit and
Management Assurances ....................................................... 180
Payment Integrity........................................................................... 200
Fraud Reduction Report ................................................................. 237
Reduce the Footprint...................................................................... 239
Civil Monetary Penalty Adjustment for Inflation .......................... 240
APPENDICES
Appendix A: Reporting Entity ....................................................... A-1
Appendix B: Acronyms and Abbreviations ................................... B-1
Appendix C: Index of Figures, Charts, and Tables........................ C-1
iii
This Page Intentionally Left Blank
MESSAGE FROM THE SECRETARY OF DEFENSE
November 15, 2019
On behalf of our nation’s sentinels serving at home and around the

world, I am honored to present the Department of Defense Agency Financial
Report for Fiscal Year 2019. This report provides the President, Congress,
and the American people with information on the taxpayer resources
entrusted to the Department in fiscal year 2019, as well as the means to assess
our management of those resources, our accomplishments, challenges, and
vision for the future.
Our mission at the Department of Defense is to provide the combat-
credible military forces needed to deter war, ensure our national security, and
protect our vital interests. Should deterrence fail, the Joint Force is prepared
to fight and win. Reinforcing America’s traditional tool of diplomacy, the
Department provides military options so the President and our diplomats always negotiate from positions
of strength. The strategic approach outlined in the National Defense Strategy continues to guide and inform
our plans and actions as we fulfill this critical role. The Management’s Discussion and Analysis section of
this report provides additional information on the alignment of our efforts to the National Defense Strategy.
This year, the Department continued its annual full-scope financial statement audit regimen. As
expected, the audit resulted in a Disclaimer of Opinion and the identification of multiple material
weaknesses. However, we have made some progress and auditor findings and recommendations continue
to provide us with invaluable information that help us target and prioritize corrective actions as we strive
to achieve an unmodified audit opinion. The Management’s Discussion and Analysis section of this report
provides my Statement of Assurance, which outlines the Department’s assessment of material weaknesses
and compliance with relevant laws and regulations. The Financial Section of this report provides the
independent auditor’s report, which details the results of the audit.
Along with our audit remediation efforts, we are devoted to modernizing and reforming our
business practices to ensure effective stewardship of taxpayer resources. In this era of mounting fiscal
challenges and competing demands, we have a responsibility to gain full value from every taxpayer dollar
spent on defense. We are actively seeking ways to identify and execute any opportunity that improves our
support to the warfighter and enhances the efficient use of our resources. These efficiency enhancements
will free up time, money, and manpower that can be reallocated to our highest priorities in support of the
National Defense Strategy.
We in the Department of Defense are grateful to the Congress for its support and investment in us,
which has allowed us to continue our vital work in protecting the American people and our interests. We
continue to strive to demonstrate that the Department manages its resources with the same precision and
confidence that we bring to our military operations. I am certain that reading this report will impart a
greater understanding and appreciation for the Department’s complexities and commitment to fiscal
transparency and effectiveness.
Dr. Mark T. Esper

FY 2019
Management’s Discussion &

Analysis
Mission Overview 1
Organizational Structure 2
Resources 8
Performance Overview 14
Forward-Looking Information 24
Financial Highlights and
Analysis 27
Audit Overview 35
Statement of Assurance 38
Management Assurances 39
Systems Compliance and
Strategy 43
Legal Compliance 47
Kentucky Air Guardsman Earns Air Force Cross for Valor in Afghanistan
Click picture above for full article
Management’s Discussion and Analysis
Mission Overview
The enduring mission of the Department of Defense (DoD or the Department) is to provide the
military forces needed to deter war and protect the security of the nation. The Department is committed to
ensuring the United States (U.S.) military remains the best prepared and most lethal Joint Force in the
world, and that the President and American diplomats negotiate from a position of strength. Should
deterrence fail, the U.S. military is prepared to fight and win.
Today, the U.S. faces an increasingly dynamic and unpredictable security environment
characterized by a decline in the long-standing free and open international order established following
World War II. Rapid advances in commercial technologies such as big data analytics, artificial intelligence,
robotics, quantum science, autonomy, and additive manufacturing (e.g., 3D printing) present both important
opportunities as well as threats
and will shape the character of
future wars. Additionally, non-
state actors and rogue regimes
remain a concern, enabled by
increasingly sophisticated
capabilities.
In response to this
complex global security
environment, the Department
continues to carry out its
mission objectives as outlined
Infantry Soldiers with 1st Battalion, 8th Infantry Regiment, 3rd Armored Brigade Combat Team, 4th Infantry
in the January 2018 National Division, fire an FGM-148 Javelin during a combined arms live fire exercise in Jordan on August 27, 2019,
Defense Strategy (NDS). The in support of Eager Lion.
U.S. Army photo by Sgt. Liane Hatch
NDS builds on the
December 2017 National Security Strategy and provides a thorough examination of the U.S. military’s
capabilities, capacity, posture, and readiness. It also articulates an effective strategy to address global
security challenges and provide for the common defense. The NDS continues to serve as the key strategic
document driving the Department’s priorities, investments, and programmatic decisions along three distinct
lines of effort:
• Rebuilding military readiness and building a more lethal Joint Force;

• Strengthening alliances and attracting new partners; and
• Reforming the Department’s business practices for greater performance and affordability.
The Department continues to faithfully implement these lines of effort thanks to the ongoing
congressional support provided through the Bipartisan Budget Act of 2019, the National Defense
Authorization Act (NDAA) for Fiscal Year 2019, and the DoD Appropriations Act of 2019. This support
has enabled the Department to continue to adapt and improve as necessary to execute its critical mission on
behalf of the President, the Congress, and the American people. Through the use of creative approaches,
sustained investments, and disciplined execution in the field, the Department will continue to foster a
dominant Joint Force that will protect the security of the nation, increase American influence, preserve
access to markets that will improve the American standard of living, and strengthen cohesion among allies
and partners. Although, the Department is currently operating under a continuing resolution, which disrupts
progress towards these goals and reduces buying power, the Department appreciates and looks forward to
a swift resolution and enactment of the Fiscal Year 2020 authorization and appropriation bills.
U.S. Department of Defense Agency Financial Report for FY 2019 | 1

Organizational Structure
The Department maintains and, when directed, uses armed forces to support and defend the
Constitution; protect the security of the United States, its possessions, and areas vital to its interests; and
deter potential adversaries from aggression. This mission requires a lethal, resilient, and rapidly innovating
Joint Force; strong relationships with allies and partners; and continued efforts to reform the Department’s
business practices for performance and affordability. As such, the Department’s management structure and
processes are not written in stone, rather, they are a means to an end—empowering the warfighter with the
knowledge, equipment, and support systems to fight and win. DoD leaders adapt, consolidate, eliminate,
or restructure their organizational structures as needed to best support the Joint Force.
The Department is one of the nation’s largest employers, with approximately 1.3 million personnel
in the Active Component, nearly 800,000 personnel serving in the National Guard and Reserve forces, and
approximately 770,000 civilian employees. DoD Military Service members and civilians operate globally
in all domains, including air, land, sea, space, and cyber space. In carrying out the Department’s mission
to protect national security, Military Service members operate approximately 16,000 aircraft and over
290 Battle Force ships.
The Department manages one of the Federal Government’s largest portfolios of real property, with
nearly 573,000 assets (buildings, structures, and linear structures) located on over 4,500 sites worldwide as
of the beginning of Fiscal Year 2019. The Department’s assets are situated on sites located in all 50 states,
7 U.S. territories, and over 40 foreign countries. These sites represent a total of nearly 26.3 million acres
that individually vary in size from training ranges with over 3.3 million acres, such as the
White Sands Missile Range, to single weather towers or navigational aids isolated on sites of less than one
one-hundredth (0.01) of an acre. The acreage consists of various interest types ranging from fee interest
(i.e., owned by the U.S. Government) to other legal interests such as leases, licenses, permits, public land
orders, treaties, and agreements. Beyond the mission-specific areas of installations (such as runways,
training areas, and industrial complexes), DoD installations also contain many types of facilities and
operations found in municipalities or on university campuses (such as hospital and medical facilities, public
safety facilities, community support complexes, housing and dormitories, dining facilities, religious
facilities, utility systems, and roadways).
The Secretary of Defense is the principal assistant and advisor to the President in all matters relating
to the Department, and exercises authority, direction, and control over the Department, in accordance with
title 10, United States Code, section 113(b) (10 U.S.C. §113(b)). The Department is composed of the Office
of the Secretary of Defense; Joint Chiefs of Staff; Joint Staff; DoD Office of the Inspector General; Military
Departments; Defense Agencies; DoD Field Activities; Combatant Commands; and other offices, agencies,
activities, organizations, and commands established or designated by law, the President, or the Secretary of
Defense (see Figure 1).
The operational chain of command runs from the President to the Secretary of Defense to the
Commanders of the Combatant Commands. The Chairman of the Joint Chiefs of Staff functions within the
chain of command by transmitting the orders of the President and the Secretary of Defense to the
Commanders of the Combatant Commands.
2 | U.S. Department of Defense Agency Financial Report for FY 2019

Figure 1. Department of Defense Organizational Structure
Office of the Secretary of Defense

The function of the Office of the Secretary of Defense (OSD) is to assist the Secretary of Defense
in carrying out his duties and responsibilities as prescribed by law. The OSD comprises the
Deputy Secretary of Defense, the Chief Management Officer (CMO) of the DoD, the Under Secretaries of
Defense (USDs), the General Counsel (GC) of the DoD, the Assistant Secretaries of Defense (ASDs), the
Inspector General of the DoD, and other staff offices within OSD established by law or by the Secretary of
Defense.
The OSD Principal Staff Assistants are responsible for the oversight and formulation of defense
strategy, policy, and resource allocation, as well as for overseeing and managing the Defense Agencies and
DoD Field Activities under their purview (see Figure 2).

Figure 2. Office of the Secretary of Defense Principal Staff Assistants
The Joint Chiefs of Staff and the Joint Staff

The Joint Chiefs of Staff (JCS), supported by the Joint Staff under the direction of the Chairman,
constitute the immediate military staff of the Secretary of Defense. The JCS consist of the Chairman
(CJCS), the Vice Chairman (VCJCS), the Chief of Staff of the Army (CSA), the Chief of Naval Operations
(CNO), the Chief of Staff of the Air Force (CSAF), the Commandant of the Marine Corps (CMC), and the
Chief of the National Guard Bureau (CNGB). The JCS function as the military advisors to the President,
the National Security Council, the Homeland Security Council, and the Secretary of Defense.
Office of the Inspector General
The DoD Office of the Inspector General (DoD OIG) is an independent unit within the Department
that conducts and supervises audits and investigations relating to the Department’s programs and
operations. The DoD Inspector General serves as the principal advisor to the Secretary of Defense on all
audit and criminal investigative matters relating to the prevention and detection of fraud, waste, and abuse
in the programs and operations of the Department.
Military Departments
The Military Departments consist of the Departments of the Army, the Navy (of which the
Marine Corps is a component), and the Air Force. Upon the declaration of war, if Congress so directs in
the declaration or when the President directs, the Coast Guard becomes a special component of the Navy;
otherwise, it is part of the Department of Homeland Security. The Army, Navy, Marine Corps, Air Force,
and Coast Guard are referred to as the Military Services. The three Military Departments organize, train,
and equip the four Military Services (or five when including the Coast Guard), and provide administrative

and logistics support to the Combatant Commands by managing operational costs and execution. The
Combatant Commands are responsible for maintaining the readiness of the forces assigned or allocated to
them and are responsible for conducting military operations.
The Military Departments include both Active and Reserve Components. The Active Component
is composed of units under the authority of the Secretary of Defense, manned by active duty Military
Service members. The Reserve Component includes the National Guard and the Reserve Forces of each
Military Service (see Figure 3). The National Guard, which has a unique dual mission with both federal
and state responsibilities, can be called into action during local, statewide, or other emergencies (such as
storms, drought, and civil disturbances) and in some cases to support federal purposes for training or other
duty (non-federalized service) when directed by the governor of each state or territory.
When ordered to active duty for national emergencies or other events, units of the National Guard
or Reserve Forces of the Military Services are placed under operational control of the appropriate
Combatant Commander or provide support to a Military Service. The National Guard and Reserve Forces
are recognized as indispensable and integral parts of the nation’s defense and are fully part of the applicable
Military Department.
Figure 3. Reserve Components – Reserve and National Guard
Defense Agencies and DoD Field Activities

Defense Agencies and DoD Field Activities are established as DoD Components by law, the
President, or the Secretary of Defense to provide, on a Department-wide basis, a supply or service activity
common to more than one Military Department when it is more effective, economical, or efficient to do so.
Although both Defense Agencies and DoD Field Activities fulfill similar functions, the former tend to be
larger, normally provide a broader scope of supplies and services, and can be designated as Combat Support
Agencies to directly support the Combatant Commands. Each of the 20 Defense Agencies and eight DoD
Field Activities operate under the authority, direction, and control of the Secretary of Defense through an
OSD Principal Staff Assistant (see Figure 4).

Figure 4. Defense Agencies and DoD Field Activities
Combatant Commands
The Commanders of the Combatant Commands are responsible for accomplishing the military
missions assigned to them (see Figure 5). Combatant Commanders exercise command authority over
assigned and allocated forces, as directed by the Secretary of Defense. The operational chain of command
runs from the President to the Secretary of Defense to the Commanders of the Combatant Commands. The
CJCS functions within the chain of command by transmitting the orders of the President or the Secretary
of Defense to the Commanders of the Combatant Commands.
This year, the Department established the United States Space Command (USSPACECOM) as the
eleventh Unified Combatant Command. The USSPACECOM increases the ability of the Joint Force to
project power and influence, reduces decision timelines for space operations, and brings focused attention
to defending U.S. interests in space. The USSPACECOM is distinct from and complementary to the
proposed U.S. Space Force.

Among Combatant Commands, the U.S. Special Operations Command (USSOCOM) has additional
responsibilities and authorities similar to a number of authorities exercised by the Military Departments
and Defense Agencies, including programming, budgeting, acquisition, training, organizing, equipping, and
providing Special Operations Forces (SOF), and developing SOF’s strategy, doctrine, tactics, and
procedures. The USSOCOM is reliant on the Military Services for ensuring combat readiness of the forces
assigned to it.
Figure 5. Combatant Commands

Resources
In Fiscal Year (FY) 2019, the Department had discretionary budget authority of $687.8 billion.
Figure 6 displays FY 2019 DoD budget authority by appropriation category. These resources and the
programs they funded supported the Department’s operations consistent with the three NDS lines of effort.
Appropriation Categories Figure 6. FY 2019 DoD Budget Authority
Operation and Maintenance (O&M) – FY 2019

O&M funding increased $8.6 billion over the
amount enacted for FY 2018. Funds in this
category included major programmatic
increases to programs such as the Military
Departments’ readiness efforts to increase the
frequency and quality of individual and
collective training, as well as improvements to
home station and depot maintenance of
weapons systems and platforms. Additionally,
$1.2 billion was received to support disaster
recovery efforts associated with Hurricanes
Florence and Michael as well as flooding in the
Midwest.
Military Personnel – FY 2019 Military Personnel
funding increased $5.4 billion over the amount
enacted for FY 2018. Funds in this category
provided for an increase of 16,400 end strength
above the FY 2018 authorized levels across all of the Military Services and supported the full
implementation of the new Blended Retirement System. The increased end strength is designed to grow
overall capacity and improve readiness through reduced operational and personnel tempo while addressing
advanced capabilities (such as cyber, electronic warfare, and special operations) needed to contend with
our most capable potential adversaries.
Procurement – FY 2019 Procurement funding decreased $0.9 billion over the amount enacted for FY 2018.
Funds in this category provided for the acquisition of equipment including unmanned aerial systems, air
and missile defense systems across the operational force, additional aircraft to replace combat-worn strike
fighters, ammunition, spare parts for existing equipment to maintain combat readiness, and individual
personal protective gear to support the warfighter. The funding also allowed for increased rates of
procurement for new and replacement weapons systems, resulting in accelerated transition timelines from
legacy platforms and increased lethality and efficiency across the Military Services. For instance, the Navy
was provided with the necessary funding for the procurement of three Arleigh Burke-class guided missile
destroyers, two Virginia-class fast attack submarines, one littoral combat ship, 37 F-35 Joint Strike Fighters,
and 24 F/A-18E/F fighters.
Research, Development, Test, and Evaluation (RDT&E) – FY 2019 RDT&E funding increased $3.6 billion
over the amount enacted for FY 2018. Funds in this category provided for critical investments in basic and
applied technologies, advanced technology development, prototypes, and design and development for
major acquisition programs. The funds also provided for upgrades to ensure that weapon systems used
today and those developed for the future will provide capabilities to maintain a technological advantage

over our potential adversaries. Significant increases in next generation aviation and space systems
development led the way, especially with such programs as the Long Range Strike Bomber, F-35
Continuous Capability Development and Delivery, 6th generation jet fighter development, modernization
of nuclear enterprise systems, and the Next Generation Overhead Infrared Reconnaissance satellite
development. Additionally, the Department solidified its investment in key technologies (such as artificial
intelligence, hypersonics, directed energy, and autonomous/unmanned systems) that are likely to
revolutionize the future of warfare.
Military Construction – Funds in this category provided for the improvement of existing infrastructure as
well as the construction of new facilities for operational and training needs, barracks, and other buildings
to support the DoD mission around the world. Additionally, these funds provided support for European
reassurance and deterrence initiatives as well as $0.9 billion to repair or replace DoD facilities damaged as
a result of Hurricane Florence, Hurricane Michael, and flooding across the American Midwest.
Revolving Funds – Funds in this category included direct appropriations to the Defense Commissary
Agency (DeCA) that supported its commissary operations, including the cost of operating the commissaries,
headquarters operations, and field operating activities.
Family Housing – Funds in this category provided for the construction of new housing, improvements to
existing housing units, operation and maintenance of government-owned housing, and the leasing of
housing facilities domestically and internationally. Examples of family housing construction efforts
supported by these funds include the Army’s projects at Vicenza, Italy; Camp Humphreys and Camp
Walker in South Korea; and the Navy’s project in Guam. The funds additionally provide for the oversight
of the Military Housing Privatization Initiative (MHPI), which enables the Military Departments to leverage
private sector expertise and funding to accelerate the improvement and sustainment of quality installation
housing in the U.S. and its territories. Under the MHPI program, private sector partners own, operate, and
maintain housing units under a ground lease with the host installation.
A B-2 Spirit Stealth Bomber, assigned to the 509th Bomb Wing at Whiteman Air Force Base, Missouri, two Royal Air Force
F-35 Lightning IIs assigned to RAF Marham, England, and two F-15 Eagles assigned to the 48th Fighter Wing at RAF
Lakenheath, England, fly in formation behind a KC-135 Stratotanker, assigned to RAF Mildenhall, England, during a training
mission for Bomber Task Force Europe on September 16, 2019.
U.S. Air Force photo by Senior Airman Thomas Barley

Illustrative Examples of Resources Expended in Support of the NDS

Rebuilding Military Readiness and Building a More Lethal Joint Force
Prioritizing Preparedness for War
Consistent with the NDS, the FY 2019 budget provided funding to continue building the Joint
Force’s capacity to deter, defeat, and disrupt aggression in order to protect the American people and defend
the nation’s vital interests. The Department identified goals and metrics to measure and manage progress
toward increasing warfighting readiness, which focus on rebuilding individual Military Service readiness
while developing collective and joint capabilities.
As such, each Military Service has unique requirements for meeting its individual readiness goals,
which are focused on similar objectives—training, equipment, sustainment, and installations. Readiness
improvements enabled by the FY 2019 budget include:
• Army increased use of Combat Training Centers and home station training to help develop crucial
anti-access and area-denial capabilities for full-spectrum warfare and the conversion of an Infantry
Brigade Combat Team to an Armored Brigade Combat Team;
• The Navy achieved their goal of 80% mission-capable rate on its F-18 and F-35 fleets;
• Marine Corps continued modernization programs that directly correlate to improved readiness by
reducing unit costs, increasing efficiencies, and providing needed operational capabilities sooner;
and
• Air Force increased the availability of air superiority, global precision attack, and rapid global
mobility platforms, such as the F-22, F-16, C-5, and KC-135.
The FY 2019 budget also included funding the Combatant Commander Exercise and Engagement
and Training Transformation (CE2T2) program, including support for over 100 major annual exercises.
CE2T2 exercises support Joint Force readiness, future force development and design, strategic messaging
and posture (deterrence and assurance), inter-agency integration, multi-national interoperability, and
strengthening of relationships with allies and partners. This is accomplished through the use of realistic
and robust combat training, realistic opposing forces, feedback, and lessons learned.
NATO allies demonstrate joint capabilities on land, air and sea for an audience of distinguished visitors and media at
Trondheim, Norway during exercise Trident Juncture 18 on Oct. 30, 2018.
U.S. Air Force photo by Tech. Sgt. Brian Kimball

Modernizing Key Capabilities

The FY 2019 budget addressed resource gaps in the capabilities, readiness, and capacity needed to
project power globally in contested environments, while emphasizing preparedness for future high-end
security challenges. The Department must be able to address near-term threats while maintaining
competitive military advantages in the future, particularly through anti-access and area denial capabilities,
systems, and corresponding strategies. The increased funding in the FY 2019 budget was invested in
advanced capabilities to reassert a technological edge over potential future adversaries, while shifting
emphasis toward a more surge-capable posture for warfighting.
The Department’s FY 2019 RDT&E program continues its focus on the development and
advancement of technologically superior systems, ensuring an overmatched capability to counter any new
and emerging threats. These efforts include applied research and development; advanced prototyping to
foster innovation and leverage commercial and nontraditional technologies; advanced manufacturing
techniques; technology demonstrations; and technology experimentation. The Department’s FY 2019
funding for the Science and Technology program increased by more than $1.0 billion to $14.1 billion,
including a Defense Advanced Research Projects Agency (DARPA) budget of $3.4 billion to develop
technologies for revolutionary, high-payoff military capabilities. The Department's increased efforts in
prototyping under the Advanced Component Development and Prototype program and the System
Development and Demonstration program will help drive down technical risk, gain warfighter feedback to
better inform requirements, and ensure that concepts going forward into acquisition programs provide
robust capabilities in a timely and affordable manner. In addition, the Department is addressing the erosion
of technological superiority by identifying and investing in innovative technologies and processes that
sustain and advance America’s military dominance.
U.S. Sailors from the aviation intermediate maintenance department jet shop performs a jet engine test cell on an F/A-18 Super Hornet jet
engine on the fantail aboard the aircraft carrier USS Dwight D. Eisenhower (CVN 69) in the Atlantic Ocean, April 14, 2019.
U.S. Navy photo by Mass Communication Specialist 3rd Class Andrew Waters

Strengthening Alliances and Attracting New Partners

The Department’s
FY 2019 budget included
$68.8 billion of Overseas
Contingency Operations funds
(not including $2.7 billion in
Supplemental Disaster Relief
funds) primarily to conduct
Operation Freedom's Sentinel
in Afghanistan, Operation
Inherent Resolve in Iraq and
Syria, efforts to support
European allies and deter
aggression, and global
counterterrorism operations.
These activities included U.S. Army Lt. Col. Angela Gentry, Washington Army National Guard, discusses battle drills with her Malaysian
maintaining a U.S. presence to army counterpart, Maj. Nurkhairunisa, during Exercise Bersama Warrior in Malaysia, March 10, 2019.
train, advise, and assist U.S. Army National Guard photo by Sgt. 1st Class Jason Kriess
Afghan security forces; supporting counterterrorism efforts in Afghanistan; sustaining personnel forward-
deployed to the Middle East to conduct operations to defeat the Islamic State of Iraq and Syria (ISIS);
building the capacity of the Iraqi security forces and Syrian opposition forces to counter ISIS in support of
the U.S. comprehensive regional strategy; and enhancing U.S. assurance and deterrence activities in Eastern
Europe to support North Atlantic Treaty Organization (NATO) allies and partners and deter aggressive
actions.
Reforming the Department’s Business Practices for Greater Performance and Affordability
As outlined in the NDS, the Department is committed to reforming its business practices and
maintaining its responsibility to gain full value from every taxpayer dollar entrusted to it. The FY 2019
budget provided funding to support this continued effort in areas such as acquisition reform, infrastructure
and support activity reform, increased availability of enterprise-wide data, audit remediation initiatives, and
improved cost accounting.
The Department also continues to employ the use of multiple cross-functional teams to identify and
implement reforms to improve operational effectiveness and maximize cost efficiencies across the
Department, especially those that can provide immediate benefits. These teams receive oversight and
guidance from the Reform Management Group—a senior leadership governance board consisting of
numerous Principal Staff Assistants—and use data to propose and evaluate reform recommendations.
Additionally, the FY 2019 budget provided funding for the Department to continue the annual
financial statement audit regimen in compliance with the Chief Financial Officer’s Act of 1990 and
remediate the identified audit findings. The focus of the audit remediation efforts is on improving the
quality and timeliness of financial information through sustaining reliable and well-controlled business
processes. The annual audits provide valuable feedback that enhance the Department’s efforts to improve
systems, processes, and internal controls across the organization.

Honoring the Commitment to DoD Personnel

The Military (Active, Reserve, and National Guard) and Civilian personnel are the foundation of
the Department and constitute its premier asset. As such, they must have the full support of the nation and
the Department to ensure they successfully accomplish the arduous mission of defending the U.S. and its
interests. Therefore, the Department is committed to providing a robust compensation and benefits package
for those individuals willing to serve their country voluntarily.
To demonstrate this commitment, the FY 2019 budget provided for a 2.6% military pay raise
effective January 1, 2019 to ensure the Department remains appropriately positioned to compete with the
private-sector marketplace for new recruits and to retain a well-trained and quality Joint Force. This
adjustment is comparable to the average annual increase in wages and salaries of private industry employees
and represents the largest military pay raise in nine years. Additionally, the new Blended Retirement
System allows the roughly 80% of Military Service members who serve for fewer than 20 years to accrue
a retirement benefit that transitions with them. The Department also manages the Military Health System
(MHS), a complex system that incorporates health care delivery, medical education, public health, private
sector partnerships, and cutting-edge medical research and development. The MHS provides health care
for approximately 9.5 million eligible beneficiaries including all Active Military Service members, retirees,
military families, dependent survivors, and certain eligible Reserve Component members.
The DoD civilian workforce—a vital element in maintaining the viability and capabilities of the
Joint Force—provide a wide range of services including logistics and supply chain management, financial
management, human resource management, cyber defense, information technology management, health
care management, and community services. The Department actively utilizes the distinct capabilities
provided by Military Service members (in both the Active and Reserve Components), civilian personnel,
and contract support to fulfill the DoD mission effectively and efficiently. The Department continues to
assess and adjust this personnel mix, as necessary, and employs process automation to realign personnel
efforts to high value, high impact areas. Cost savings from these efforts can be repurposed to support force
readiness and modernization initiatives.
A U.S. Marine jumps from an MV-22B Osprey aircraft during parachute training operations, Marine Corps Air Station Kaneohe Bay, Marine Corps Base
Hawaii, June 7, 2019.
U.S. Marine Corps photo by Cpl. Luke Kuennen

Performance Overview
As stated in the NDS, the nation must focus on fielding a larger, more capable, and more lethal
Joint Force to protect the American people and U.S. vital interests. The FY 2018 – FY 2022 National
Defense Business Operations Plan (NDBOP) guides the execution of the DoD mission by aligning the daily
activities of the Department to the lines of effort established in the NDS:
• Rebuild military readiness and build a more lethal Joint Force;

• Strengthen alliances and attract new partners; and
• Reform the Department’s business practices for greater performance and affordability.
The NDBOP fulfills requirements of the Government Performance and Results Act of 1993
(GPRA), the GPRA Modernization Act of 2010 (GPRAMA), and the Office of Management and Budget
(OMB) Circular No. A-11. The Department measures implementation of both the NDS and the NDBOP
by tracking performance goals and measures that evidence progress towards achieving the NDS lines of
effort.
This section provides an overview of the Department’s performance results through Quarter 3 (Q3),
FY 2019, based on the FY 2020 Annual Performance Plan (which covers the FY 2019 budget execution
year). Detailed narrative information and performance results that support this overview are available in
the Third Quarter, FY 2019 Performance Results Summary, which succeeds and fulfills the purpose
formerly accomplished by the Organizational Assessment Report. Complete FY 2019 performance results
through fiscal year-end will be published in the Annual Performance Report section of the Department’s
FY 2021 President’s Budget Request in February 2020, which will be available on the Office of the Chief
Management Officer’s website at https://cmo.defense.gov.
Members of the U.S. Air Force Honor Guard Drill Team stand at attention during the playing of The Star-Spangled Banner prior to the 500 Festival
Parade in Indianapolis, May 25, 2019.
U.S. Air National Guard photo by Senior Airman Jonathan W. Padish

Enterprise Performance Management

The Department is a performance-based organization committed to using performance data to drive
decision-making and improve business operations. Leaders at all levels throughout the Department are
responsible for meeting the performance goals and measures set out in the Annual Performance Plan (APP)
that relate to their functional areas. Additionally, the APP performance goals and measures are used to
inform critical elements of senior executive performance plans in order to empower leaders to focus on
achieving measurable outcomes that align with the NDS and NDBOP (see Figure 7).
Figure 7. DoD Performance Measurement and Evaluation Process
In addition to the APP performance goals and measures, the Department employs hundreds of other
performance measures to help assess progress in key areas such as reform, acquisition performance, military
readiness, audit remediation, and business process improvement. Together, these datasets help DoD
management monitor the entire breadth and scope of the Department’s worldwide responsibilities and guide
the effective and efficient use of resources. This performance information supports multiple decision-
making and accountability efforts such as provision to the Deputy Secretary and Secretary of Defense to
inform management decisions, inclusion in budget exhibits to justify funding requests, and submission to
the Congress through a wide range of reports to facilitate proper legislative oversight.
A U.S. Army mobile gun system Stryker variant belonging to Quickstrike Troop, 4th Squadron, 2nd Cavalry Regiment fires upon several targets during a
week long gunnery range at the Grafenwoehr Training Area, Germany, Feb. 14, 2019.
U.S.Army photo by Sgt. Timothy Hamlin

Summary of Strategic Goals, Objectives, and Performance Results

Figure 8. DoD Strategic Goals and Objectives
Strategic Goal Strategic Objective
1.1 – Restore military readiness to build a more lethal force
1.2 – Modernize key capabilities
1.3 – Enhance information technology and cybersecurity defense capabilities

Goal 1:
1.4 – Deliver timely and relevant intelligence to warfighters and decision makers to
Rebuild Military Readiness and provide decisive and dominant advantage over adversaries
Build a More Lethal Joint Force 1.5 – Implement initiatives to recruit and retain the best total force to bolster
capabilities and readiness
1.6 – Ensure the U.S. technological advantage
1.7 – Evolve innovative operational concepts
Goal 2: 2.1 – Reform the Security Cooperation Enterprise
Strengthen Alliances and Attract

New Partners 2.2 – Expand regional consultative mechanisms and collaborative planning
3.1 – Improve and strengthen business operations through a move to DoD-

enterprise or shared services; reduce administrative and regulatory burden
Goal 3: 3.2 – Expand our data analytics capability and cultivate data-driven solutions
3.3 – Improve the quality of budgetary and financial information that is most valuable
Reform the Department’s Business
in managing the DoD
Practices for Greater Performance
and Affordability 3.4 – Streamline rapid, iterative approaches from development to fielding
3.5 – Harness and protect the National Security Base
Through Q3, FY 2019 the Department has been successful in meeting or exceeding 92% of the
APP performance targets for which performance results were available, including those related to achieving
efficiencies, effectiveness, and cost savings; audit remediation; and reforming the Department’s business
operations. Results for performance targets not measured at Q3 as well as updated performance results for
the entire fiscal year (i.e., measured as of Q4) will be published in the Annual Performance Report.
The Department assesses its progress towards the achievement of performance goals and measures
using the following threshold definitions:
• Exceeded: Actual performance more than 100% of target

• Met: Actual performance 90-100% of target
• Not Met: Actual performance below 90% of target
To ensure the quality of the assessed performance data, the Office of the Chief Management Officer
requires written attestation from DoD goal owners attesting that (1) all performance information is
complete, accurate, and reliable, and (2) verification and validation procedures were performed on the data,
the procedures were documented, and supporting documentation is available upon request.

Strategic Goal 1: Rebuild Military Readiness and Build a More Lethal Joint Force
The surest way to prevent war is to be Figure 9. Strategic Goal 1 Performance Result Summary
prepared to win. This requires a competitive
approach to force development and a consistent,
multiyear investment to restore warfighting
readiness. The nation must field a capable and
lethal Joint Force that possesses decisive
advantages for any likely conflict, while
remaining proficient across the entire spectrum
of conflict. To support this goal, the Department
must gain and maintain information superiority;
modernize key capabilities, such as space and
cyberspace warfighting domains; and evolve
innovative operational concepts for the ways the
Joint Force is organized and deployed.
Central to the achievement of this goal are the people who comprise the DoD workforce.
Recruiting, developing, and retaining a high-quality military and civilian workforce is essential for the
Department’s warfighting and deterrent success. Cultivating a lethal, agile Joint Force requires more than
new technologies and posture changes—it depends on the ability of Military Service members and the DoD
civilian workforce to integrate new capabilities, adapt warfighting approaches, and improve business
practices in order to achieve mission success. The creativity and talent of the combined DoD workforce is
the Department’s greatest enduring strength, and one that is not taken for granted.
Figure 9 provides summary performance results for the Strategic Goal 1 performance targets
measured at of Q3, FY 2019 (55 of 87 performance targets). Updated performance results for all
performance targets will be available in the Annual Performance Report.
A formation of U.S. Air Force F-35 Lightning IIs assigned to the 388th and 419th Fighter Wings stationed at Hill Air Force Base perform
aerial maneuvers during as part of a combat power exercise over Utah Test and Training Range, Nov. 19, 2018.
U.S. Air Force photo by Staff Sgt. Cory D. Payne

Illustrative Performance Results

Readiness Recovery Framework
During FY 2019, the Department continued to utilize the Readiness Recovery Framework (R2F)
to measure, assess, and understand the various metrics that indicate Joint Force readiness. The R2F metrics
and goals measure each Military Service’s progress related to key readiness drivers such as personnel
accessions and retention, training, equipment availability, and maintenance shortfalls. The Department
uses this R2F data to help inform policy and programming decisions to improve readiness conditions in
line with the NDS, address
risks to national security, and
identify opportunities for
modernization and innovation.
As of Q3, FY 2019 the
Department conducted semi-
annual assessments of Military
Service force elements, thereby
maturing and improving
management’s understanding
of DoD readiness drivers,
contextualizing the number of
force elements facing readiness
shortfalls, and providing an Marines with Combat Logistics Battalion 31 ride aboard a landing craft after completing a simulated
assessment of progress toward Humanitarian Assistance-Disaster Relief mission, Philippine Sea, Feb. 3, 2019.
U.S. Marine Corps photo by Lance Cpl. Harrison C. Rakhshani
readiness recovery. The R2F
was also validated and updated where necessary through the Executive Readiness Management Group
(comprised of General/Flag Officers and Senior Executive Service members with expertise in readiness)
and reported to the Deputy Secretary of Defense, Secretary of Defense, and Congress. The Department has
identified that external factors—such as the lack of stable, predictable, and adequate funding; changes in
operational tempo; and real-world actions of near-peer adversaries—may pose challenges to the R2F.
Civilian Time to Hire
Having a well-staffed and highly capable workforce is of utmost importance to the Department’s
efforts to improve Joint Force readiness and increase lethality. To accomplish this, the Department must
efficiently and effectively hire a diverse cadre of top-quality candidates to provide the skills needed to
support the success of the DoD mission now and in the future. The length of the hiring process has a direct
impact on the accomplishment of this goal—prolonged hiring times force DoD leaders to operate with
limited resources for longer intervals and may result in the loss of top talent to competing opportunities,
leaving hiring managers with less qualified candidates.
The Department uses Time to Hire (TTH) as a metric to measure and assess its ability to hire new
talent efficiently. The goal for this metric, 80 days, is established by the Office of Personnel Management
Hiring Elements End-to-End Hiring Roadmap. As a result of targeted initiatives—such as Department-
wide collaboration on hiring improvement, increased use of available direct hire authorities, and
streamlining of the Priority Placement Program—the average civilian TTH as of Q3, FY 2019 decreased
by nine days as compared to the FY 2018 average of 100 days.

Strategic Goal 2: Strengthen our Alliances & Attract New Partners

Mutually beneficial alliances and Figure 10. Strategic Goal 2 Performance Result Summary
partnerships are crucial to the Department’s
strategy of providing a durable, asymmetric
strategic advantage that no competitor or rival
can match. By working together with allies and
partners, the Department amasses the greatest
possible strength for the long-term advancement
of American interests and maintaining favorable
balances of power that deter aggression and
support the stability of economic growth. Allies
and partners provide a wealth of benefits to the
accomplishment of the DoD mission such as
providing access to critical regions; providing
unique perspectives, regional relationships, and
information; and supporting a widespread basing
and logistics system that underpins the Department’s global reach.
The Department of Defense is part of a broad interagency team working with the
Department of State and other stakeholders to build international cooperation through bilateral, regional,
and broader relationships toward mutually beneficial strategic and operational outcomes. The Department
achieves a robust network of allies and partners through a wide range of programs and activities designed
to improve security, interoperability and preparedness, and increased capability and capacity. These
programs include provision of defense articles and services, institutional capacity building, exercises and
training events, military-to-military exchanges, professional military education at U.S. military schools,
and collaborating to develop key technological capabilities.
The Royal Australian Navy amphibious assault ship HMAS Canberra (L 02), the U.S. Navy Nimitz-class aircraft carrier
USS Ronald Reagan (CVN 76), the U.S. Navy amphibious assault ship USS Wasp (LHD 1), and the Japan Maritime
Self-Defense Force helicopter destroyer JS Ise (DDH-182) sail in formation with 14 other ships from the U.S. Navy, U.S.
Coast Guard, Royal Australian Navy, Royal Canadian Navy and Japan Maritime Self-Defense Force (JMSDF) during
Talisman Sabre 2019.
U.S. Navy photo by Mass Communication Specialist 3rd Class Jason Tarleton


Foreign Military Sales
In accordance with 22 U.S.C. §2752, the Secretary of State is responsible for management and
supervision of all aspects of U.S. security cooperation programs – including the Foreign Military Sales
(FMS) program. The Secretary of Defense implements FMS programs to transfer defense articles and
services to the countries and international organizations approved by the Secretary of State. The
Department of Defense also prepares the Security Assistance Accounts (SAA) financial statements, which
include FMS program financial activity and position. (Note: The SAA financial statements are not
consolidated in the DoD Agency-Wide financial statements but are consolidated directly into the
Financial Report of the United States Government as a separate stand-alone Significant Reporting Entity
in accordance with Treasury Financial Manual Volume 1, Part 2, Chapter 4700, Appendix 1a.)
The Defense Security Cooperation Agency (DSCA) administers the execution of individual FMS
cases by leveraging its existing acquisition and accounting systems to fill orders, primarily by placing them
on DoD contracts. In carrying out this role, the DSCA continued focusing on improving overall FMS case
development performance through the implementation of incremental process and policy improvements.
“Case development” refers to the process for responding to the submission of a Letter of Request for
information from an eligible foreign partner; see Security Assistance Management Manual (SAMM),
Chapter 5 for additional information about FMS case development. One key performance target
established in the SAMM is for implementing agencies to offer or implement 85% of their Letter of Offer
and Acceptance documents on or before the relevant anticipated offer date timeline. As of Q3, FY 2019
the performance of this metric increased to 76%, from 70% in FY 2018. Additionally, based on detailed
analyses and reviews, the DSCA lowered the FMS administrative surcharge from 3.5% to 3.2% and reduced
seven FMS transportation rates by varying amounts.
U.S. Soldiers assigned to the 65th Field Artillery Brigade, and soldiers from the Kuwait Land Forces fire their High Mobility Artillery Rocket Systems (U.S.) and
BM-30 Smerch rocket systems (Kuwait) during a joint live-fire exercise, Jan. 8, 2019, near Camp Buehring, Kuwait.
U.S. Army photo by Sgt. James Lefty Larimer

Strategic Goal 3: Reform the Department’s Business Practices for Greater Performance and
Affordability
Over time, the lack of standard business Figure 11. Strategic Goal 3 Performance Result Summary
processes have allowed the Department’s
decision-making to become overly cumbersome,
costly, and risk-averse in an attempt to ensure
quality of performance. The Department
recognizes that in order to face the challenges of
its complex and dynamic operating environment,
reforms must be implemented to increase the
speed with which decisions, policies, capabilities,
and information are provided in support of the
warfighter. As such, the Department must
transition to a management system that allows
leadership to harness opportunities for improved
efficiency, thereby assuming greater risk at the
headquarters level in order to reduce operational
risk to the warfighter. This management system must also be coupled with a transition to a culture of
performance where results and accountability matter. Together, these changes will help support the
Department’s goals of supporting Joint Force lethality and fulfilling the responsibility of gaining full value
from every taxpayer dollar spent on defense.
In line with this vision, the Department continues to examine all of its business operations to
identify time, money, and manpower that can be reallocated to higher priorities (such as enhancing lethality,
readiness, and modernization). The reform examinations will be based on cost-informed performance data
measured, tracked, and reported by the Office of the Chief Management Officer. This effort is currently
demonstrating value as the Department continues to execute the reform agenda outlined in the
FY 2019 – FY 2023 Defense Program Review—an estimated $6 billion budget savings have been realized.
U.S. Marine Corps Cpl. Chancelor J. Kelso, a scout sniper team leader with Weapons Company, Battalion
Landing Team, 1st Battalion, 4th Marines, posts security during reconnaissance and surveillance training at
Camp Hansen, Okinawa, Japan, Dec. 12, 2018.
U.S. Marine Corps photo by Lance Cpl. Tanner D. Lambert


Information Technology
The Department continues to evaluate reform activities related to Information Technology (IT). In
FY 2019, the IT reform activities achieved the following:
• Fourth Estate Network and Service Optimization: The Department completed assessments and
migration plans for 14 Fourth Estate (i.e., OSD, Defense Agencies, and DoD Field Activities)
networks to facilitate migration to a single service provider. The Department also issued a Global
Service Desk Request for Quote (RFQ) to enable the consolidation of 17 Fourth Estate help desks
to a single enterprise solution and initiated the development of a business case to identify the
solution that offers the greatest benefit to the Department.
• Fourth Estate Cloud and Data Center Optimization: The Department completed assessments of
approximately 800 Fourth Estate applications/systems to identify opportunities for migration and
data center closures. Migration plans were then developed to understand resource requirements
and enable tracking of Fourth Estate consolidation progress. This enabled the successful migration
of 244 systems to enterprise-level hosting environments and the closure of 17 Fourth Estate data
centers.
• Enterprise Collaboration and IT Tools: The Department developed an acquisition strategy to
support the issuance of the Defense Enterprise Office Solution (DEOS) RFQ. The DEOS contract
will create an enterprise collaboration capability for the Department to enable the migration of over
3.1 million Non-classified Internet Protocol Router (NIPR) Network users and over 600 thousand
Secret Internet Protocol Router (SIPR) Network users to an enterprise collaboration solution.
Logistics and Supply Chain
In collaboration with the senior logistics commanders and staffs, the Logistics Reform Team
developed a portfolio of 24 initiatives around four key themes: (1) standardizing processes and reducing
duplication; (2) establishing single process owners and governance structures; (3) leveraging data and data
interoperability; and (4) adopting well-aligned and authoritative performance measures. The team then
prioritized each initiative by assessing it against projected impact on readiness, projected return on
investment, and ease of implementation in order to deliver reform improvements quickly. Against this
prioritized list, the Logistics Reform Team developed a number of proofs of concept, most of which are
scheduled to be completed by the end of calendar year 2019. These proofs of concept will validate or reject
the initial estimated cost/readiness improvements and determine whether the initiatives should be
implemented across the enterprise. Examples of logistics reform successes through Q3, FY 2019 include:
• The Secretary of Defense approved three initiatives for implementation:

o Alternatives to Forecasting Methods provides strategies for setting stock levels that will
improve cost and supply availability performance for items with inherently unforecastable
demand patterns compared against conventional forecasting methodologies.
o Enterprise Buying (formerly Strategic Sourcing of Sustainment for Commodity
Procurement) will rely on a single organization as the primary buyer to achieve savings
through economies of scale.
o Non-tactical Warehouse Integration (NWI) study showed that vast improvements in space
utilization are possible. The Warehouse Utilization effort will implement the findings from
the NWI study across the Department.

• Defense Logistics Agency (DLA) anticipates $84 million cost avoidance during FY 2019 from
efficiencies implemented through consolidation of Industrial Supply, Storage, and Distribution
functions.
• DLA realized $25 million in savings in FY 2019 through the Whole of Government initiative,
which expanded support to the Department of Veteran’s Affairs and increased DLA’s buying
power.
Reduce Regulatory Burden
A key Administration
priority is to reform regulatory
requirements that negatively impact
the U.S. economy. In accordance
with Executive Order 13777 and
OMB Memorandum M-17-23, the
Department established a goal to
review all 716 DoD codified
regulations in order to evaluate
regulations for consolidation and to
eliminate unnecessary, outdated, or
ineffective regulations by 25%.
This effort will help reduce burden U.S. Marines with the 12th Marine Regiment, 3rd Marine Division, compete against each other during a
and costs to the public; identify field meet at Camp Hansen, Okinawa, Japan, Jan. 18 2019.
priority regulations that align with U.S. Marine Corps photo by Lance Cpl. D’Angelo Yanez.
the Secretary of Defense’s priorities; and improve the business process of issuing regulations.
The DoD Regulatory Reform Task Force review, which was completed by Q1, FY 2019,
recommended 248 (35%) regulations for repeal, 49 (7%) for replacement, 80 (11%) for modification, and
339 (47%) for retention. The Department has established a goal of implementing at least 50 Task Force
recommendations a year. In FY 2019, through Q3, the Department implemented 44 recommendations that
resulted in repealing 35 regulations, replacing 3, modifying 3, and retaining 3.
Enterprise Data
In FY 2018, the Department established its first Chief Data Officer (CDO) to lead the extraction
and analysis of data to support business reform. The CDO, in partnership with the Office of the Under
Secretary of Defense (Comptroller), is establishing data as a stand-alone shared service, allowing data to
be the foundation for business decisions. Data is a strategic, mission-essential asset, rather than an IT
consideration. DoD leaders require data-driven insights that provide a “fair and accurate,” Department-
wide representation of DoD operations and management. Readily available, good quality data (i.e., data
that is complete, correct, and current) enables DoD leaders to manage mission performance and
accountability, as well as to prioritize and ensure the best use of resources.
In Q3, FY 2019 the CDO developed and implemented Enterprise Cost Management pilot programs
for three lines of business (Acquisition, Supply Chain/Maintenance, and Human Resources) to extract
common enterprise data from relevant systems and analyze the data to generate operational insights that
answer critical business questions from DoD leaders. These pilot programs will evolve into a data
management and analytics shared services for the purposes of supporting enhanced oversight and
management.

Forward-Looking Information
Over recent fiscal years, the Department has made great strides to improve its current readiness,
while simultaneously making significant investments in future capabilities and force modernization. Given
the breadth and complexity of its mission, the Department faces a myriad of emerging risks and challenges.
Nevertheless, the Department is committed to ensuring a clear-eyed appraisal of these risks and in
identifying every opportunity that may optimize its operational performance. These risks include:
Inaccurate/incomplete General Property, Plant and Equipment (PP&E) data may negatively affect
decision-making.
Incomplete system records, inability to demonstrate the right of occupancy or ownership, and
missing/inadequate supporting documentation for General PP&E may cause inaccuracy in the financial
records used by DoD leaders for decision-making. As a result, there exists a risk that DoD leaders may
make inefficient asset acquisition and deployment decisions based on inaccurate and incomplete data. To
mitigate this risk, DoD leaders prioritized floor-to-book and book-to-floor physical inventories for General
PP&E to ensure that all General PP&E are properly accounted for in an accountable property system of
record.
The disparate systems that comprise the DoD Information Network may be vulnerable to unauthorized
access by internal and external parties.
Over the past decade, DoD core functions have become increasingly reliant on the internet and
other networks at various classification levels. Many of these functions (such as financial management,
logistics, and personnel services) are split across multiple systems owned by various DoD Components.
This wide and disparate systems infrastructure complicates the efficient sharing of information (such as
requests for removal or modification of user access); increases the number of attack vectors adversaries
could use to gain unauthorized access to sensitive or classified data; and increases the difficulty of
implementing consistent, effective cybersecurity protocols. The Department is implementing a wide range
of initiatives to mitigate these risks, including increased management and review of user access rights,
consolidation of networks through the deployment of Joint Regional Security Stacks, and increased
collaboration with private-sector partners through the Defense Industrial Base (DIB)
Cybersecurity Program. Additionally, the Department maintains the DoD Cybersecurity Policy Chart to
assist cybersecurity professionals in remaining cognizant of the breadth of applicable policies.
The Department’s use of unsupported journal vouchers may increase the risk of material misstatements in
the DoD financial statements.
The Department continues to operate hundreds of financial and feeder systems across the
enterprise. These legacy systems, many of which were designed and implemented in the 1960s, are not
able to capture all of the transaction-level data attributes needed to satisfy various accountability and
reporting requirements. As a result, the Department must perform manual work-around processes utilizing
journal vouchers, some of which are not adequately supported by substantiating documentation. In the
absence of support, the accuracy and applicability of the data captured by journal vouchers cannot be
verified. To mitigate this risk, the Department is continuing its efforts to aggressively retire and replace
legacy systems while conducting analyses to determine the root causes of unsupported journal vouchers to
inform the development of corrective actions.

Budget impasses and continuing resolutions may negatively impact DoD planning and readiness.
The Department relies on predictable and timely appropriations in order to conduct long-term
planning for continued recovery of military readiness and other key capabilities. The absence of fully
enacted appropriations at the beginning of a fiscal year prevent the Department from implementing new
operational improvement initiatives, restricts the operations of certain civilian and Reserve Component
personnel, and affects the availability of funding for critical weapon systems acquisition and personnel
compensation. To mitigate this risk, the Department closely monitors the appropriation process throughout
the year and develops contingency plans to ensure the continuation of essential operations in the absence
of available appropriations.
Natural disasters may disrupt DoD operations, pose danger to DoD property and personnel, and
necessitate additional funding to support disaster recovery efforts.
As DoD installations and personnel are located around the globe, the Department is often affected
by a variety of natural disasters. The effects of these events may manifest as costs incurred for preventative
relocation of assets and personnel and/or costs to conduct significant repairs. Additionally, supporting
American disaster recovery efforts and those of our allies is inherent to the Department’s mission of
protecting the American people and national interests. To mitigate the financial and operational risks
presented by natural disasters, the Department maintains robust continuity of operations plans to ensure
availability of critical assets, capabilities, and infrastructure. The DoD OIG conducted an audit of the extent
of the Department’s natural disaster preparedness as described in DODIG-2019-086 and found that the
Department has implemented a framework of guidance, recurring exercises in disaster scenarios, corrective
action programs that incorporate lessons learned and after‑action reports, training, advanced contracts, and
agreements.
U.S. Air Force Tech. Sgt. Frank Babauta, a structural craftsman with the 254th Rapid Engineer Deployable Heavy Operational Repair Squadron Engineers, assesses
a home damaged by Super Typhoon Yutu in the village of Koblerville, Saipan, Commonwealth of Northern Mariana Islands, Nov. 12, 2018.
U.S. Air Force photo by Tech. Sgt. Joshua J. Garcia

Emergence of a new health advisory and potential regulation by the Environmental Protection Agency of
an emerging chemical of concern, found in fire-fighting foam used by the Department may necessitate the
need for additional funding.
Poly- and Per-Fluoronated Alkyl Substances (PFAS) are a group of chemicals found in everyday
consumer items such as non-stick cookware, microwave popcorn bags, fast-food wrappers, water-resistant
clothing, shampoo, dental floss, nail polish, and eye makeup. They are also found in firefighting foam,
known as aqueous film-forming foam (AFFF), used by the Department, commercial airports, and other
industries. In 2016, the Environmental Protection Agency issued a drinking water lifetime Health Advisory
for perfluorooctane sulfonate (PFOS) and perfluorooctanoic acid (PFOA), two PFASs used widely
throughout the United States. The Department is addressing past releases of these chemicals from DoD
activities under 42 U.S.C. §9601, assessing the potential health impacts of exposure to Military Service
members; researching fire-fighting alternatives, and evaluating options/requirements involved in altering
or replacing equipment used for AFFF distribution.
GAO High Risk List
The Government Accountability Office (GAO) issues a biannual list of programs and operations
across the Federal Government that they deem to be a high risk due to their vulnerabilities to fraud, waste,
abuse, and mismanagement, or that need transformation. The FY 2019 GAO High Risk List
(GAO-19-157SP) included the following risks specifically related to the Department:
• DoD Approach to Business Transformation

• DoD Business System Modernization
• DoD Contract Management
• DoD Financial Management
• DoD Support Infrastructure Management
• DoD Weapon Systems Acquisition
GAO measures agency progress in addressing the risks identified in their list along five criteria:
leadership commitment; capacity; action plan; monitoring; and demonstrated progress. Based on these
criteria, the GAO removed one DoD-specific area (DoD Supply Chain Management) from the previous
(FY 2017) High Risk List and documented progress made toward addressing three of the remaining risks
(DoD Support Infrastructure Management, DoD Financial Management, and DoD Business System
Modernization). The Department is committed to driving continual progress towards addressing these risks
in support of more effective and efficient operations.

Financial Highlights and Analysis

The principal financial statements are prepared to report the financial position and results of
operations of the Department, pursuant to the requirements of 31 U.S.C. §3515(b). The statements are
prepared from the books and records of the Department in accordance with the formats prescribed by OMB
Circular No. A-136 and, to the extent possible, with U.S. Generally Accepted Accounting Principles for
federal entities as prescribed by the Federal Accounting Standards Advisory Board (FASAB). Reports used
to monitor and control budgetary resources are prepared from the same books and records. The financial
statements should be read with the realization that they are for a component of the U.S. Government.
The DoD Agency-Wide financial statements and accompanying explanatory notes are located in
the Financial Section of this report. The principal financial statements include:
• Balance Sheet
• Statement of Net Cost
• Statement of Changes in Net Position
• Statement of Budgetary Resources
Engineman 2nd Class Christian McCain of Arlington, Texas engages opposing forces while dismounted with a M240 machine gun. The Coastal Riverine Squadron
(CRS) 1 convoy section is being assessed for measure of performance at Naval Air Station Point Mugu, Calif. CRS-1 is qualifying for future mobilization
requirements.
U.S. Navy photo by Hospital Corpsman 1st Class Kenji Shiroma

Balance Sheet
The Balance Sheet, which reflects the Department’s financial position as of September 30, 2019
and September 30, 2018, reports probable future economic benefits obtained or controlled by the
Department (Assets), claims against those assets (Liabilities), and the residual amounts (Net Position). The
Department anticipates annual fluctuations in the Balance Sheet as a result of changes in budget authority
and the annual audit, which is driving improved internal controls and more disciplined accounting and
financial reporting.
The $2.9 trillion in assets shown in Figure 12 represents amounts the Department owns and
manages. Fund Balance with Treasury (FBwT), Investments, Inventory and Related Property (I&RP), and
General PP&E represent 98.9% of the Department’s assets.
Figure 12. Summary of Total Assets
During FY 2019, total assets increased $140.4 billion (5.1%) from FY 2018, primarily attributable
to additional investments in Department of Treasury (Treasury) securities ($95.8 billion) to cover the future
cost of Military Retirement and Health Benefits. Each year, Treasury contributes a specified sum to cover
unfunded Military Retirement and Health Benefits and the Uniformed Services (i.e., the Military Services,
National Oceanic and Atmospheric Administration, and the Public Health Service) fund the Department’s
current year cost. The remaining $44.6 billion increase is primarily attributable to increases in FBwT,
I&RP, and General PP&E as a result of additional budget authority (in recent years) and more disciplined
accounting practices (e.g., completeness and existence of I&RP and General PP&E, asset valuation, and
compliance with accounting standards (capitalization versus expense)).
The Department’s $2.8 trillion of liabilities shown in Figure 13 are backed by the full faith and
credit of the U.S. Government. Military Retirement/Other Federal Benefits and Environmental/Disposal
Liabilities represent 96.8% of the Department’s liabilities.

Figure 13. Summary of Total Liabilities
During FY 2019, the Department’s total liabilities increased $195.9 billion (7.6%) primarily due to
revised actuarial estimates associated with Military Retirement Benefits (an increase of $181.1 billion).
This actuarial adjustment considers expected interest costs, normal costs, and changes in actuarial
assumptions, net of benefit outlays. The remaining $14.8 billion increase is primarily attributable to
additional Environmental and Disposal Liabilities ($5.7 billion) and all other liabilities ($9.1 billion).
Figure 14 shows the amount of liabilities covered by budgetary resources and the amount that is
not covered by budgetary resources. It also shows the composition of liabilities not covered by budgetary
resources, which primarily consists of unfunded military retirement benefits to be funded by Treasury.
Figure 14. Liabilities Covered/Not Covered by Budgetary Resources

Statement of Net Cost

The Statement of Net Cost presents the net cost of all the Department’s programs. The statement
reports total expenses incurred less revenues earned from external sources to finance those expenses.
Generally, the differences between net costs reflected on the Statement of Net Cost and net outlays reported
on the Statement of Budgetary Resources arise from the timing of expense recognition. These timing
differences include the capitalization of assets purchased during the fiscal year; changes to the balances of
various assets and accrued liabilities; and the depreciation expense on property, plant and equipment.
Additional information regarding these differences is located in the Financial Section of this report.
Figure 15. Summary of Net Cost of Operations
Note: The FY 2019 Military Retirement Benefits net program cost does not include a $2.4 billion Loss from Actuarial Assumptions
related to pre-Medicare-Eligible Health Benefits that is included in the net program cost of Operations, Readiness and Support.
The Department’s seven major programs are reflected in Figure 15. The below outlines the types
of costs incurred during the fiscal years ended September 30, 2019 and September 30, 2018, by program:
• Operations, Readiness, and Support includes expenditures from which benefits are derived for a
limited period of time, such as salaries and related benefits, minor construction projects, expenses
of operational military forces, training and education, recruiting, depot maintenance, purchases
from Defense Working Capital Funds (e.g., spare parts), base operations support, and assets with a
system unit cost less than the current capitalization threshold.
• Military Personnel includes expenditures for the salaries and other compensation for active military
personnel, reserve, and guard forces. Other compensation includes a variety of expenditures, such
as housing, subsistence, and other allowances; special pay categories (e.g., incentive pay for
hazardous duty); and contributions for future benefits under the Medicare-Eligible Retiree Health
Care Fund.
• Procurement includes expenditures for the acquisition of items which provide long-term benefits
as well as all costs necessary to bring the items to the condition and location for their intended
operational use.
• Military Retirement Benefits includes expenditures that cover eligible members’ retirement pay,
disability retirement pay, and/or health care benefits for Medicare-eligible members and their
dependents or survivors.
• Research, Development, Test, and Evaluation includes expenditures related to efforts that increase
the Department’s knowledge and understanding of emerging technologies, determine solutions for
specific recognized needs, and establish technological feasibility of new developments. These

efforts include all costs necessary to develop and test prototypes, including purchases of end-items,
weapons, equipment, components, and materials, as well as the performance of services.
• Family Housing includes expenditures associated with purchasing, leasing, and support services
for property that house Military Service members and their families.
• Military Construction includes expenditures related to planning, designing, constructing, altering,
and improving the Department’s worldwide portfolio of military facilities.
• Civil Works includes expenditures related to Energy and Water Development programs executed
by the U.S. Army Corps of Engineers (USACE) that primarily fulfill three mission areas:
commercial navigation; flood and storm damage reduction; and aquatic ecosystem restoration.
The major programs comprising the greatest share of the Department’s costs incurred during
FY 2019 were Operations, Readiness, and Support; Military Personnel; and Procurement. The
Department’s gross costs were offset by investment earnings and contributions to support retirement and
health benefit requirements, as well as earnings from reimbursed activities. This activity resulted in a Net
Cost of Operations of $870.6 billion during the fiscal year.
Net Costs increased $209.2 billion (31.6%) in FY 2019, primarily as the result of a $122.1 billion
loss from actuarial assumption changes for Military Retirement Benefits, which consider factors such as
actual/projected demographic trends and plan amendments.
U.S. Air Force Airman 1st Class Noah Coger, a broadcast journalist with the 86th Airlift Wing public affairs office, shows video to
some students of the Home de la vierge des Pauvres Gatagara/Nyanza in the Nyanza District, Rwanda, March 5, 2019.
U.S. Air Forces photo by Tech. Sgt. Timothy Moore

Statement of Changes in Net Position

The Statement of Changes in Net Position (SCNP) presents the total cumulative results of
operations since inception and unexpended appropriations at the end of the fiscal year. The SCNP displays
the components of Net Position separately to enable the financial statement user to obtain a better
understanding of the nature of changes to Net Position as a whole. The statement focuses on how the
Department’s Net Cost of Operations is financed and the resulting effect on the Department’s Net Position.
The Department’s ending Net Position decreased $55.5 billion (29.9%) during FY 2019, which was
predominately attributable to the $209.2 billion increase in Net Cost of Operations.
The Department started FY 2019 with a Net Position of $185.6 billion and its Net Cost of
Operations in FY 2019 was $870.6 billion. These costs were financed by reduced unexpended
appropriation balances ($15.4 billion), adjustments to the beginning Cumulative Results of Operations
($11.5 billion), budgetary financing sources ($766.5 billion), and other financing sources ($21.6 billion) to
end FY 2019 with a Net Position of $130.0 billion.
Unexpended appropriations increased $15.4 billion from $529.8 billion in FY 2018 to
$545.2 billion in FY 2019, primarily due to a large unexpended balance carried forward from FY 2018
($71.9 billion) and increased DoD budget authority ($17.2 billion).
The beginning Cumulative Results of Operations were adjusted upward by $7.2 billion through
corrections of an error under FASAB Statement of Federal Financial Accounting Standards (SFFAS) 21.
In addition, the Department adjusted the beginning Cumulative Results of Operations upward by
$4.3 billion due to changes in accounting principles primarily related to establishing opening balances and
revising valuations for General PP&E, which also increased by the same amount, as the Department
continued to implement SFFAS 48 and SFFAS 50.
Budgetary Financing Sources increased by $64.5 billion primarily due to an increase in
appropriations used ($62.7 billion), appropriations are the primary source of the Department’s financing.
Other Financing Sources increased $13.9 billion primarily due to a $22.0 billion gain from the
revaluation of the net book value of equipment being reclassified as inventory offset by $10.3 billion in
losses from revaluation of inventory.
A U.S. Army paratrooper descends to a drop zone near Camp Lemonnier, Djibouti, June 10, 2019.
U.S. Air Force photo by Staff Sgt. Devin Boyer

Statement of Budgetary Resources

The Statement of Budgetary Figure 16. Composition of DoD Total Budgetary Resources
Resources (SBR) presents the
FY 2019 FY 2018
Department’s total budgetary Description
($ in Billions) ($ in Billions)
resources, their status at the end of
DoD Budget Authority * $ 687.8 $ 670.6
the fiscal year, and the relationship
Treasury contribution for Military Retirement and
between the budgetary resources and Health Benefits
101.6 96.3
the outlays made against them. In
Civil Works Projects executed by USACE 8.2 22.8
accordance with federal statutes and
related regulations, obligations may Trust Fund Receipts 172.5 164.2
be incurred and payments made only
Trust Fund Resources Temporarily not Available (95.7) (90.3)
to the extent that budgetary resources
are available to cover such items. In Appropriations (Discretionary and Mandatory)
$874.4 $863.6
Reported on SBR
FY 2019, the Department reported Unobligated Balances from Prior Year Budget
226.8 181.0
$1.3 trillion in total budgetary Authority
authority (as shown in Figure 16). Spending Authority from Offsetting Collections 113.0 119.4
The total amount of Contract Authority 86.8 88.4

$874.4 billion for “Appropriations
(Discretionary and Mandatory)” Total Budgetary Resource $1,301.0 $1,252.4
reported on the SBR primarily * FY 2019 DoD Budget Authority from Figure 6 and Figure 17
consists of appropriations enacted
for the Department, contributions for DoD military retirement and health benefits made by the Treasury,
and Civil Works appropriations managed by USACE. Current year Trust Fund Receipts, including those
received into the Military Retirement Fund and the Medicare-Eligible Retiree Health Care Fund, are also
included in the SBR line item amount. Trust Fund Resources Temporarily not Available represent budget
authority that the Department will execute in future years to pay the current unfunded liabilities carried in
these large funds.
Figure 17. Trend in DoD Budget Authority Of the $1.3 trillion in total
budgetary resources, $1.1 trillion
was obligated and $0.8 trillion of
obligations were disbursed. The
remaining unobligated budgetary
resources balance relates primarily
to appropriations available to cover
multi-year investment projects.
These projects require additional
time for delivery of goods and
services. Expired appropriations
remain available for valid upward
adjustments to prior year
obligations but are not available for
new obligations.
In FY 2019, the Department reduced the amount of expired unobligated balances by $5.0 billion
($27.7 billion in FY 2018 to $22.7 billion in FY 2019) by improving its financial management of expiring
resources. In carrying out its operations, the Department must balance the goal of prudently obligating

available budget resources before they expire with the mandate to avoid over-obligating or over-expending
funds in violation of the Antideficiency Act. The vast amount and variety of contracts, projects, and
activities (e.g., construction projects, complex acquisitions, cutting-edge technology efforts, and
contingency operations) that must be carried out without exceeding available budget authority often result
in adjustments that must be recorded beyond the year(s) of initial obligation, as authorized by
31 U.S.C. §1553. Consequently, the Department must always maintain a prudent level of expired
unobligated appropriations to facilitate these adjustments.
Financial Performance Summary
The Department’s financial performance is summarized in Figure 18. This table represents the
Department’s condensed financial position and results of operations, including comparisons of financial
balances from the current year to the prior year. Although the Department received a Disclaimer of Opinion
on its financial statements, audit remediation efforts will continue to improve the Department’s financial
information.
Figure 18. Financial Performance Summary
Increase/(Decrease)
FY 2019 FY 2018
Dollars in Billions $ %
COSTS
Total Financing Sources $ 788.1 $ 709.7 $ 78.4 11.0%
Less: Net Cost (870.6) (661.4) (209.2) 31.6%
Net Change of Cumulative Results of Operations $ (82.5) $ 48.3 $ (130.8) -270.8%
NET POSITION
Assets:
Fund Balance with Treasury $ 607.6 $ 580.2 $ 27.4 4.7%
Investments 1,191.1 1,095.3 95.8 8.7%
Accounts Receivable 7.9 7.6 0.3 3.9%
Other Assets * 23.3 32.0 (8.7) -27.2%
Inventory and Related Property, Net 291.5 275.7 15.8 5.7%
General Property, Plant and Equipment, Net 768.6 758.8 9.8 1.3%
Total Assets $ 2,890.0 $ 2,749.6 $ 140.4 5.1%
Liabilities:
Accounts Payable $ 41.2 31.1 $ 10.1 32.5%
Other Liabilities ** 46.3 47.3 (1.0) -2.1%
Military Retirement and Other Federal Employment Benefits 2,596.4 2,415.3 181.1 7.5%
Environmental and Disposal Liabilities 76.1 70.4 5.7 8.1%
Total Liabilities $ 2,760.0 $ 2,564.1 $ 195.9 7.6%
Net Position (Assets minus Liabilities) $ 130.0 $ 185.5 $ (55.5) -29.9%
* Other Assets includes Other Assets, Cash and Other Monetary Assets, and Loans Receivable
** Other Liabilities includes Debt, Other Liabilities, and Loan Guarantee Liability

Audit Overview
The annual financial statement audit regimen is foundational to reforming the Department's
business practices consistent with the NDS. Data from the audits provide an additional means to define our
remediation goals, measure progress, and evaluate alternatives. The FY 2019 audit covered the
Department’s total assets of more than $2.9 trillion and involved more than 1,400 auditors, who conducted
over 600 site visits. Auditor findings and recommendations help DoD leaders prioritize improvements,
drive efficiencies, identify issues with systems, measure progress, and inform business reform efforts. The
outcomes of the audit remediation efforts will include greater financial data integrity, better support for the
warfighter, and increased transparency for Congress and the American people.
FY 2019 Audit Results
Auditors conducted 24 standalone audits of DoD reporting entities and the DoD OIG performed
the overarching consolidated audit. Six reporting entities received unmodified opinions, one received a
qualified opinion, and three are pending opinion as shown in Figure 19. Opinions for the Defense
Information Systems Agency (DISA) General Fund, DISA Working Capital Fund, and the DoD OIG are
expected to be received in January 2020.
Figure 19. FY 2019 Audit Structure and Results
All other DoD reporting entities received a Disclaimer of Opinion. A Disclaimer of Opinion means
the auditor was unable to obtain sufficient appropriate audit evidence on which to base an opinion on the
financial statements. The Department’s leadership fully expected these results, as receiving a Disclaimer
of Opinion is consistent with the experiences of other large and complex federal agencies during their initial
years under financial statement audit.

As of November 15, 2019, the FY 2019 audits resulted in the issuance of more than 1,300 Notices
of Findings and Recommendations (NFRs). The Department anticipates receiving significantly more NFRs
as the auditors finish compiling their findings and developing the related NFRs. In addition to issuing
NFRs, each auditor identified the audited DoD Component’s material weaknesses in their Independent
Auditor’s Report. Understanding how the various DoD Component NFRs align to the DoD Agency-wide
material weaknesses provides a consistent framework for categorizing NFRs, allows DoD leaders to better
prioritize corrective actions, and focuses remediation efforts on the challenges that are the most significant
and widespread.
The DoD OIG’s Independent Auditor’s Report on the FY 2019 DoD Agency-wide financial
statements is available in the Financial Section. A summary of the DoD Agency-wide audit- and
management-identified material weaknesses, as well as planned corrective actions, is available in Other
Information.
FY 2019 Audit Priorities
The Department established its FY 2019 financial statement audit priorities by focusing corrective
actions on operational improvements that provided the greatest value to the warfighters in the near-term.
Although some issues related to these business areas may require long-term solutions (such as retiring
legacy systems), the FY 2019 audit priorities contained various opportunities that were immediately
actionable at multiple levels throughout the Department. The FY 2019 audit priorities were:
• Real Property (Existence and Completeness)

• Inventory, and Operating Materials and Supplies
• Government Property in the Possession of Contractors
• Access Controls for IT Systems
Examples of Military Department progress in addressing these priorities include:
• The Army’s IT application controls over the Logistics Modernization Program system were found
by auditors to be effective and no exceptions were noted in auditor testing;
• The Navy completed 100% inventory of real property assets resulting in a 98% accuracy rate; and
• Air Force completed floor-to-book and book-to-floor inventories over 96% of its buildings.
A U.S. Navy MH-60R Seahawk helicopter assigned to the "Spartans" of Helicopter Maritime Strike Squadron (HSM) 70 shoots an
AGM-114N Hellfire missile during exercise Baltic Operations (BALTOPS) 2019 in the Baltic Sea, June 14, 2019.
U.S. Navy photo by Mass Communication Specialist 1st Class Theodore Green

Measuring Progress
The number of auditor findings closed and material weaknesses downgraded from year to year is
the independent benchmark for measuring progress toward achieving an unmodified audit opinion. During
FY 2019, the Department succeeded in closing over 20% of the NFRs issued during the FY 2018 audit.
However, many of the corrective actions implemented were not in effect long enough for the auditors to
validate their effectiveness in addressing the issues identified in the NFRs. As such, the Department
anticipates NFRs closing at increased rates over time as the audit and related remediation efforts mature.
As the closings of these NFRs grow, the related material weaknesses are expected to downgrade or be
resolved as the effect of implemented corrective actions continue to manifest. See Figure 20 for a snapshot
of the status of the Department’s FY 2018 NFRs and CAPs as of November 15, 2019. (Note: the numbers
in this figure include progress made after the FY 2019 end date of September 30, 2019.)
Figure 20. FY 2018 DoD NFRs and CAPs as of November 15, 2019
Additionally, the Department measures progress by:
• Tracking the achievement of major milestones towards the remediation of complex NFRs;
• Assessing the quality of corrective action plan (CAP) preparation and implementation by
comparing them to those previously validated by the auditors as successfully addressing NFRs;
• Identifying areas where auditors are able to rely on internal controls and moving validated CAPs
into sustainment;
• Expanding Statement on Standards for Attestation Engagements (SSAE) No. 18 examinations and
increasing reliance on System and Organizational Control (SOC) reports over service providers;
and
• Increasing reliance on Advana, the Department’s advanced data analytics platform, for audit
sampling, supporting transaction details in response to auditor requests, monitoring remediation
activities, and inspiring data-driven conversation with Components and other stakeholders.
Ultimately, the Department will track progress by the number of reporting entities moving from
disclaimers of opinion to qualified opinions and from qualified opinions to unmodified opinions.

Statement of Assurance
November 15, 2019
The Department’s management is responsible for establishing and maintaining effective internal controls
to comply with the Federal Managers’ Financial Integrity Act of 1982 (FMFIA) and the Federal Financial
Management Improvement Act of 1996 (FFMIA). In FY 2019, the DoD Office of Inspector General completed its
second annual full-scope audit of DoD’s consolidated financial statements. The Department continues to use a risk-
based approach to address audit findings, and prioritize remediation activities and corrective actions affecting the
financial statements. As the Department matures its audit posture, it will continue to improve its controls to support
reliable financial reporting; effective and efficient programmatic operations; and compliance with applicable laws
and regulations, including federal financial management systems requirements.
The Department assessed the effectiveness of internal controls over financial reporting in accordance with
FMFIA §2 and OMB Circular No. A-123. While DoD internal controls continue to improve, the Department
concluded that the controls in place to support reliable financial reporting as of September 30, 2019, were not
effective to provide reasonable assurance that the financial statements were fairly stated in all material respects.
Deficiencies in the design and operation of internal controls over financial reporting include ineffective processes
and controls over the posting of transactions to the general ledger and reconciling with the Department of the
Treasury; ineffective processes and controls over compiling financial statements, reconciling data, and supporting
entries (including journal vouchers); and ineffective processes and controls over accounting for valuing, and
supporting Property, Plant, and Equipment.
The Department assessed the effectiveness of internal controls over operations and compliance with
applicable laws and regulations in accordance with the FMFIA §2 and the OMB Circular No. A-123. Based on this
assessment, the Department provides a modified statement of reasonable assurance of the effectiveness of internal
controls in place to support effective and efficient programmatic operations and compliance with applicable laws
and regulations as of September 30, 2019. The Department continues to address all material weaknesses, with
increased focus in the areas of acquisition, contract administration, resource management, and cyber security.
The Department assessed the compliance of DoD financial management systems with federal financial
management systems requirements in accordance with FMFIA §4; FFMIA §803(a); and OMB Circular No. A-123,
Appendix D. This requires federal agencies to implement and maintain financial management systems that comply
with federal financial management system requirements, applicable federal accounting standards, and the
U.S. Standard General Ledger at the transaction-level. While the Department continues to achieve progress
implementing corrective actions to address various systems limitations, the assessment found that the Department’s
financial management systems do not fully comply with the requirements of FMFIA §4 and FFMIA §803(a) as of
September 30, 2019.
FMFIA §2, FMFIA §4, and FFMIA §803(a) material weaknesses and corrective actions are further
described in Other Information.
The Department remains committed to making significant and measureable improvements in its ability to
provide reliable, timely, and useful financial and managerial information to support management decisions.
Findings from the annual financial statement audits provide valuable insight critical to achieving the Department’s
business reform goals and demonstrating its continued commitment to financial accountability and transparency.
Dr. Mark T. Esper

Secretary of Defense
Management Assurances
The Department is committed to ensuring an effective system of internal controls to provide
reasonable assurance that its critical mission is met. An effective system of internal controls is central to
supporting the NDS line of effort to reform business practices for greater performance and affordability.
By appropriately assessing internal controls, the Department can identify opportunities to improve business
operations and support effective financial stewardship.
The Federal Managers’ Financial Integrity Act of 1982 (FMFIA) requires federal agencies to
evaluate and report on the effectiveness of the organization’s internal controls to support effective and
efficient operations, reliable financial reporting, and compliance with applicable laws and regulations. The
Office of the Chief Management Officer (OCMO) and the Office of the Under Secretary of Defense
(Comptroller), Office of the Deputy Chief Financial Officer (ODCFO) lead the Department’s effort in
fulfilling this requirement via Enterprise Risk Management (ERM) and Internal Control Program (ICP)
responsibilities. The DoD ERM/ICP holds both operational and financial managers accountable for
ensuring they are effectively managing risks and internal controls in their areas of responsibility. In
accordance with Office of Management and Budget (OMB) Circular No. A-123 and GAO Standards for
Internal Control in the Federal Government (“Green Book”), the Department continually strives to integrate
proactive risk management and effective internal controls into existing business activities.
U.S. Navy Chief Mass Communication Specialist Shannon E. Renfroe photographs F/A-18E Super Hornets from Strike Fighter Squadron (VFA) 136 Knighthawks as
they fly in formation during a photo exercise over the Pacific Ocean, March 12, 2019.
U.S. Navy photo by Mass Communication Specialist 2nd Class Morgan K. Nall

The Department advocates a “tone-at-the-top” approach, with an emphasis on the importance of

the internal control program. The Department established a governance model comprising a variety of
stakeholders to serve as the mechanism to identify and prioritize enterprise-wide risks and drive cross-
functional solutions to Department-wide financial management challenges. Central to the governance
model is the Financial Improvement Audit Remediation Governance Board (FGB). This Senior Executive
Committee serves as the Senior Management Council, chartered to assess and monitor deficiencies in
internal controls. FGB membership includes the Under Secretary of Defense (Comptroller)/CFO and the
CMO; Senior Executives that cover acquisition, human capital, and information technology; and Senior
Executives representing material (major) DoD Components. Additionally, Functional Councils were
established to coordinate and facilitate the remediation of priority issues impacting the Department’s ability
to obtain an unmodified audit opinion. This governance framework supports decision-making and ensures
Department-wide deficiencies are reported in a timely manner and associated CAPs are monitored
throughout the DoD Components.
In relation to this, the Department continues to work toward the goal of implementing and
incorporating ERM into the decision-making process at all levels of management. ERM promotes the
identification of a full spectrum of risk registers and prioritizes them into a risk portfolio to inform and
impact strategic, operational, reporting, and compliance objectives. In FY 2019, the Department made
progress in maturing the ERM/ICP with the goal of integrating risk management and internal controls
testing. To achieve this, the Department conducted a thorough risk assessment through the Statement of
Assurance process to establish a business operations risk register. This assessment process will ensure that
significant business operation risks are identified, addressed, and aligned to DoD Component significant
deficiencies and material weaknesses. This risk-based approach assists the DoD Components with
prioritizing audit remediation corrective actions, internal control testing, and risk mitigation. In addition,
the ODCFO identifies Department-wide focus areas for testing based on the Department-wide materiality
level and possible impact on financial statement line items. This process leverages OMB
Circular No. A-123 and the Green Book to ensure the Department has the appropriate oversight to prioritize
and mitigate systemic, operational, and financial risks.
In accordance with DoD Instruction 5010.40, each DoD Component assesses key functional,
operational, and financial areas that are essential to the completion of its mission and objectives. DoD
Components rely upon appointed assessable unit managers for each key area to identify and report internal
control improvement opportunities as well as deficiencies for review and remediation. DoD Components
that produce standalone financial statements are also required to assert to the effectiveness of internal
controls over financial reporting, operations, and financial management system requirements. The goal of
the ERM/ICP is to support the Department’s mission by implementing appropriate controls to identify,
prioritize, and mitigate risks before they negatively impact the mission. In addition, the Department is
leveraging the financial statement audit as a tool to identify high-risk areas and integrate audit and internal
control remediation efforts.

FY 2019 Improvements in Internal Controls

Strong internal controls are essential to achieving and sustaining an efficient and effective
organization. Despite many challenges, the Department is steadily improving internal controls, which
resulted in cost avoidance and operational improvements. Some significant accomplishments to the internal
control environment are highlighted below.
Department of the Army
As of Q4, FY 2019, the Department of the Army has completed the implementation of corrective
actions for 65% of the NFRs issued during their FY 2018 financial statement audit related to Information
Technology General Controls (ITGCs) over its material ERPs and Legacy Financial and Non-Financial
systems. The implemented corrective actions improved the Army’s ITGCs related to a variety of systems
process areas including access controls, segregation of duties, configuration management, security
management, and contingency planning. During FY 2019, the independent public accounting firm
conducting the Army’s standalone financial statement audit reviewed and validated the effectiveness of
97% of the implemented ITGC corrective actions.
Department of the Navy
In FY 2019, the Department of the Navy initiated an assessment of 30 financially significant
applications to identify possible segregation of duties conflicts. To facilitate the assessment, the Navy
created an automated tool that allows time-consuming and labor-intensive reviews to be automated. This
tool generates a report in as few as five minutes that previously would have taken days to weeks to complete.
The Navy completed a full inventory of all Real Property assets located on Navy installations. The
inventory included over 115,000 assets and found approximately 19,600 errors. The errors were evenly
divided between existence (the asset was reflected in Navy records but were previously disposed of),
completeness (the asset was present on a Navy installation but not reflected in the records), and data
attributes (information about the asset was incorrectly reflected in Navy records, such as the use of the
wrong facility category code). Navy corrected all of the errors in the accountable property system of record
(APSR). Correcting these errors improved the completeness, existence, and accuracy of the data reflected
on the Navy's Balance Sheet related to General Property, Plant, and Equipment and contributed to
downgrading the associated Navy material weakness.
Department of the Air Force
In FY 2019, the Air Force identified the complete population of programs where contractors
possess and manage Air Force-owned spare parts. In order to improve its accountability over Government
Furnished Material, the Air Force implemented updated procedures to require contractors to perform an
annual review of all Air Force-owned spare parts in their possession and provide the data for reconciliation
with the APSR. Sustaining these procedural changes will allow the Air Force to maintain full accountability
of its spare parts in the possession of contractors.
Defense Finance and Accounting Service (DFAS)
DFAS implemented new policies and procedures to strengthen its system of internal controls in
response to audit findings related to suspense account balances, the Treasury Statement of Differences
(SOD), and Cash Management Report (CMR) variances. This resulted in a 95% reduction ($34.0 billion)
in DoD suspense account balances, $3.8 billion reduction in Treasury SODs, and $1.5 billion reduction in

CMR variances. As a result, DFAS was able to deliver a complete universe of transactions for these Fund
Balance with Treasury risk areas, including beginning balances.
Defense Health Agency (DHA)
DHA developed a series of reconciliations that tie the General Ledger (GL) details from six unique
accounting systems to the financial statements. As a result, DHA was able to support the financial statement
line items down to the supporting GL system detail for over $22.2 billion in assets. DHA was also able to
reconcile trial balances produced by different systems, which helped resolve almost $213.0 billion in
variances.
Department of Defense Agency-Wide
Multiple IT NFRs were issued across the Department during the FY 2018 audit related to
ineffective or non-existent Access Controls. These NFRs comprised 46% of all FY 2018 NFRs issued.
During FY 2019, the Office of the Under Secretary of Defense (Comptroller) partnered with the Office of
the Chief Management Officer and the Office of the Chief Information Officer to identify the root causes
and begin remediating these NFRs. In July 2019, a joint memo was issued from these offices instructing
DoD Components to take action on audit deficiencies with both a high audit impact and high cybersecurity
impact. The status of corrective actions for these high priority deficiencies is being actively monitored. In
addition, an automated solution for provisioning and managing access to audit-impacting applications has
been selected for DoD Components that do not already have this capability in place. This solution will be
put in place as the Department pursues a longer term identity and credential management capability. Once
fully implemented, the Department anticipates that auditors will validate the effectiveness of these tools in
addressing the NFRs, which should be closed as a result.
A U.S. Marine Corps military dog, Larry, is prepared to go with the Maritime Raid Force (MRF), 26th Marine Expeditionary Unit (MEU), is prepared to conduct a
raid during Realistic Urban Training (RUT) on Camp Lejeune, North Carolina, June 9, 2019.
U.S. Marine Corps photo by Cpl. Tanner Seims

Systems Compliance and Strategy

The Department is engaged in a complex and challenging transformation to reform its financial
management (FM) environment for enhanced mission effectiveness and auditability. This necessarily
includes improving business systems compliance with the Federal Financial Management Improvement
Act of 1996 (FFMIA) and OMB Circular No. A-123, Appendix D. Modernization and improved
interoperability of DoD business systems is critical to efficiently respond to warfighter needs and sustain
public confidence in the Department’s stewardship of taxpayer funds.
After 10 U.S.C. §2222 was amended by the NDAA for FY 2012 to modify requirements for review
of defense business system investments, the Department significantly changed the requirement structure
and processes for investment reviews and the certification of defense business systems, which must occur
before funds are obligated. The Department’s investment review process is used to assess whether
investments in business systems align with the Department-wide integrated business strategy (Figure 21).
These assessments also include retirement plans for legacy financial systems. The retirement of these
systems eliminates redundant activity; maximizes operating efficiency by streamlining business processes;
and increases the availability of timely, accurate, and useful business information for use in data-driven
decision-making.
Figure 21. DoD Integrated Business Framework
The Department’s FM Functional Strategy provides the Department’s vision, initiatives, goals,
target environment, and expected outcomes over five years. Rooted in fiscal accountability and financial
improvement, the FM Functional Strategy for FY 2019 – FY 2023 will lead to strategic outcomes that are
essential for the optimal utilization of the resources provided to the Department to carry out its mission.
The key components of the FM Functional Strategy include creating data and data exchange
standards, implementing system controls and enhancements, establishing standard business processes, and
leveraging technology across the Department’s end to-end processes. The primary objective of the FM
Functional Strategy is to achieve a fully integrated environment linked by standard processes and standard
data with the fewest number of systems and interfaces. Ultimately, this strategy will lead to stronger

internal controls, impacting financial reporting and auditability; improvements in end-to-end funds
traceability; and linkage between budget and expenditures. Current enterprise-level initiatives include the
implementation of the Standard Financial Information Structure (SFIS), the Department’s standard line of
accounting, which will improve funds traceability and financial reporting. The Department also participates
in Federal Government-wide business process improvement efforts as well as the Treasury’s government-
wide accounting, Treasury Disbursing Office (formerly referred to as Treasury Direct Disbursing), and
Intra-Governmental Transactions initiatives. The Department also promotes the use of business analytics
and maximizing existing Enterprise Resource Planning (ERP) systems.
Figure 22. DoD FM Systems Improvement Initiatives
Note: Acronyms in this figure are

defined in Appendix B
Enterprise Resource Planning Systems

The ERP systems are integral to implementing the strategic FM business process improvements,
achieving the planned target environment and reductions in the number of legacy systems, and enabling a
sustainable audit environment. The ERPs provide a broad range of functionality to support DoD business
operations in areas such as financial management, supply chain management, logistics, and human resource
management. Some ERPs are fully fielded while others are in a state of development and deployment.
Department of the Army
General Fund Enterprise Business System (GFEBS) is the General Fund accounting, asset
management, and financial system used to standardize, streamline, and share critical data across the active
Army, Army National Guard, and Army Reserve. GFEBS is a web based ERP solution that uses
commercial off-the-shelf (COTS) business enterprise software to compile and share accurate, up-to-date
financial and accounting data.

The Logistics Modernization Program (LMP) is one of the world’s largest, fully integrated supply
chain, maintenance, repair and overhaul, planning, execution, and financial management systems. The
LMP mission is to sustain, monitor, measure, and improve the modernized, national-level logistics support
solution. By modernizing both the systems and the processes associated with managing the Army’s supply
chain at the national and installation levels, LMP will permit planning, forecasting, and rapid order
fulfillment to supply lines. It will also improve distribution, reduce theater footprint, and ensure the
warfighter is equipped and ready to respond to present and future threats.
Global Combat Support System – Army (GCSS-A) is an acquisition system that provides enterprise-
wide visibility into various logistic areas and is a key enabler for the Army in achieving auditability.
GCSS-A provides the tactical warfighter with supply, maintenance, property accountability, integrated
materiel management center, management functionality, and support for tactical financial processes.
Integrated Personnel Pay System – Army (IPPS-A) is a hybrid solution using ERP software to
deliver an integrated personnel and pay capability. Once fully implemented, IPPS-A will provide the Army
with an integrated, multi-component personnel and pay system that streamlines Army Human Resources
processes, enhances the efficiency and accuracy of Army personnel and pay procedures, and supports
soldiers and their families. IPPS-A will improve internal controls to prevent erroneous military payments
and loss of funds.
U.S. Army Sgt. Madeliene R. Biltz (right), a maintenance chief from San Diego, California, and U.S. Army Pfc. Cody L. Rouse (left), a maintenance crew member
from Bull Mountain, Texas, both assigned to Delta Company, 1st Engineers Battalion, 1st Armored Brigade Combat Team, 1st Infantry Division push an Unmanned
Aerial Vehicle onto a launching ramp during UAV training at Trzebien, Poland, May 07, 2019.
U.S. Army photo by Spc. Yon Trimble
Department of the Navy

Navy Enterprise Resource Planning (Navy ERP) is an integrated business system that provides
streamlined financial, acquisition, and supply chain management to the Navy’s systems commands.
Global Combat Support System – Marine Corps (GCSS-MC) is focused on the acquisition and
implementation of the initial set of logistics capabilities to deliver improved supply, maintenance
management services, inventory and equipment accountability, and rapid equipment task organization. As
the technology centerpiece of the Marine Corps' overall logistics modernization effort, GCSS-MC provides
advanced expeditionary logistics capabilities and functionality to ensure future combat efficiency.

Navy Personnel and Pay System (NP2) combines military pay and personnel functions into one
seamless COTS system by streamlining existing personnel and pay systems and processes, providing an
adaptable solution that meets the complex needs of Sailors, HR employees, and Navy leaders. Once fully
implemented, NP2 will provide a platform for future initiatives such as improved marketplace-style
detailing, enhanced performance evaluations and management, targeted compensation (e.g., bonuses), and
automation of time-consuming back office functions. By streamlining processes and systems, the
implementation of NP2 will improve the speed, accuracy, and quality of personnel and pay services.
Department of the Air Force
Defense Enterprise Accounting and Management System (DEAMS) is an automated accounting
and financial management execution system for the Air Force and U.S. Transportation Command. DEAMS
is the core accounting and financial management solution for the Transportation Working Capital Fund and
General Fund. It serves as the financial foundation for all enterprise business system modernization across
the Air Force. DEAMS provides accurate and timely financial information using standardized business
processes and complies with applicable federal laws, regulations, and policies.
Air Force Integrated Personnel and Pay System (AF-IPPS) is a comprehensive, self-service, web-
based solution currently in development that integrates personnel and pay processes into one system and
maintains an official member record throughout the Airman’s career. AF-IPPS is designed to be an FFMIA-
compliant system and, once fully implemented, will enhance general and application controls.
U.S. Air Force Special Tactics Operators and Jordanian Special Forces protect a patient from sand as a medical helicopter lands for
evacuation during a scenario as part of Eager Lion 2019 near Sahab District, Hashemite Kingdom of Jordan, Sept. 3, 2019.
U.S. Air Force photo by Staff Sgt. Rose Gudex
Other Defense Organization ERPs

Defense Agencies Initiative (DAI) is a system dedicated to addressing financial management
improvements through standard end-to-end business processes delivered by COTS software. Currently,
DAI provides Budget-to-Report, Proposal-to-Reward, Cost Management, Order-to-Cash, Procure-to-Pay,
Acquire-to-Retire, and Hire-to-Retire capabilities for Fourth Estate organizations.
Enterprise Business System (EBS) uses a COTS product to manage the Defense Logistics Agency’s
(DLA) supply chain management business. EBS also includes Electronic Procurement, Real Property,
Inventory Materiel Management and Stock Positioning, and Energy Convergence modules, providing DLA
leadership with the tools to respond to new challenges and trends.

Legal Compliance
Antideficiency Act (ADA)
The Antideficiency Act is codified in 31 U.S.C. §§1341(a)(1), 1342, and 1517(a). The ADA
stipulates that federal agencies may not obligate or expend funds in excess of the amount available in an
appropriation or fund or in advance of appropriations; accept voluntary services on behalf of the Federal
Government or employ personal services in excess of that authorized by law, except as it may be necessary
in emergencies involving the safety of human life or the protection of property; or obligate, authorize, or
expend funds that exceed an apportionment or amount permitted by a regulation prescribed for the
administrative control of an appropriation. An ADA violation is a serious matter as it represents a violation
of a federal statute. A federal employee who violates the ADA may be subject to administrative sanctions
(such as suspension from duty without pay or removal from office) and/or penal sanctions (such as fines or
imprisonment).
To enhance knowledge and improve compliance with ADA requirements, the Department
leverages the DoD FM Certification Program, sponsored by the Office of the Under Secretary of Defense
(Comptroller), which requires the FM workforce to complete competencies and other specific courses
(including fiscal law training requirements) that relate to the ADA and various other FM topics.
Additionally, in keeping with the reporting requirements for violations of the Act under 31 U.S.C. §1351,
the Department maintains a close cooperation with the Military Departments and Defense Agencies as they
investigate suspected ADA violations. Confirmed ADA violations are reported to the President through
the Director of the OMB, Congress, and the Comptroller General of the United States.
During FY 2019, four ADA violations were reported totaling $30.4 million. The cause of the cases
were:
• The Department violated the purpose rule by inappropriately purchasing supplies from a contractor
that did not comply with the requirements of the Berry Amendment (10 U.S.C. §2533a);
• The Department violated the purpose rule by incorrectly concluding that an exception to the Berry
Amendment applied when executing a contract to procure protective footwear;
• The Department violated the purpose rule by inappropriately obligating and expending Operations
& Maintenance (O&M) funds instead of Military Construction funds to convert a building in
violation of 10 U.S.C. §§2802 and 2805; and
• The Department violated the purpose rule by inappropriately obligating and expending O&M funds
instead of Research, Development, Testing and Evaluation funds to develop and implement an IT
system.
The Department has implemented several measures to prevent a recurrence of these type of
violations such as issuing new policies and guidance and improving procedures and internal controls.
Further information about each of the Department’s reported ADA violations and the remedial actions taken
are included in GAO’s annual compilation of Antideficiency Act Reports.
Digital Accountability and Transparency (DATA) Act
The Digital Accountability and Transparency Act of 2014 (DATA Act) amended the Federal
Funding Accountability and Transparency Act of 2006 (FFATA) to require the public reporting of
additional financial data to supplement the current contract and financial assistance award data on
USAspending.gov. The goal of the law is to improve the ability of the public to track and understand how
the Federal Government is spending taxpayer funds. The DATA Act requires federal agencies to report

and certify their financial and award data to the Treasury on a quarterly basis, for public consumption on
USAspending.gov. This information includes the amount of funding the Department receives; the source
of the funding (e.g., appropriations, transfers, and carry-forward balances from prior fiscal years); plans for
spending the funding; and the actual use of the funding, to include the disclosure of the entities or
organizations receiving federal funds through contract and grant awards.
The Department and USACE (for whom DATA Act submission is audited separately) have been
compliant with the DATA Act reporting requirements since September 2018, when they began reporting
award financial data for grant assistance and contracts. As of June 2019, the Department reported the
alignment of over $52.3 billion across approximately 999,300 active contract and assistance awards
(98% of the population) through DATA Act submissions. The Department is fully committed to enabling
transparency into the use of the taxpayer dollars entrusted to it as the Department continues to reform and
modernize its operations for greater affordability, accountability, and performance.
Federal Civil Penalties Inflation Adjustment Act
On November 2, 2015, the Federal Civil Penalties Inflation Adjustment Act Improvements Act
of 2015 (the 2015 Act)—which further amended the Federal Civil Penalties Inflation Adjustment Act
of 1990 (Inflation Adjustment Act, 28 U.S.C. §2461, note)—was signed into law to improve the
effectiveness of civil monetary penalties and maintain their deterrent effect. The 2015 Act requires federal
agencies to report the most recently published inflationary adjustments to civil monetary penalties in order
to ensure that civil penalties under their purview are periodically adjusted.
The Department publishes information on these inflationary adjustments to the Federal Register
separately for the adjustments related to the USACE and those related to the remainder of the Department.
The implementation of the 2015 Act deters violations of law, encourages corrective action(s) of existing
violations, and prevents waste, fraud, and abuse within the Department.
Additional information regarding the types of civil penalties within the Department’s purview and
their amounts is located in Other Information.
U.S. Navy Ensign Lacey Kelley, right, from Tahlequah, Oklahoma, practices taking down a member of the security forces training team after being
sprayed with oleoresin capsicum spray during security reaction force basic training on the flight deck of the Arleigh Burke-class guided-missile destroyer
USS Stockdale (DDG 106) in the East China Sea Nov. 23, 2018.
U.S. Navy photo by Mass Communication Specialist 3rd Class Abigayle Lutz

Fraud Reduction and Data Analytics Act

The Fraud Reduction and Data Analytics Act of 2015 (FRDAA) was enacted on June 30, 2016 to
help improve the ability of federal agencies to prevent, detect, and respond to fraud. Under the FRDAA,
federal agencies are required to: (1) conduct an evaluation of fraud risks and use a risk-based approach to
design and implement financial and administrative control activities to mitigate identified fraud risks;
(2) collect and analyze data on detected fraud to monitor fraud trends and use the data and information to
continuously improve fraud controls; and (3) use the results of monitoring, evaluation, audits, and
investigations to improve fraud prevention, detection, and response. In FY 2018, the Department furthered
its FRDAA compliance efforts by developing an enterprise-wide Fraud Risk Management (FRM)
framework and appointed the Office of the Under Secretary of Defense (Comptroller) as the lead for
supporting the DoD Components in implementing fraud controls.
In FY 2019, all DoD Components conducted enterprise fraud control and fraud risk assessments to
establish a baseline for fraud programs across the Department. The results of these assessments will be
used to develop a maturity plan to improve fraud mitigation efforts across the Department. The Department
strengthened and communicated its commitment to FRM through an annual Town Hall, working groups,
newsletters, and employee training. The Department continued to mature data analytics capabilities to
detect and monitor fraud, and established an approach to use results from investigations and audits to
improve fraud prevention, detection, and response. As these and other efforts progress, the Department
will continue to assess the compliance and maturity of FRM across the Department, including the evaluation
of internal controls related to fraud risks; the use of data analytics (including improper payments); and the
number of fraud risks identified and mitigated. Detailed information regarding the Department’s FY 2019
FRDAA compliance efforts is located in Other Information.
Improper Payments Elimination and Recovery Act (IPERA)
In accordance with the Improper Payments Information Act of 2002 (IPIA), as amended by the
Improper Payments Elimination and Recovery Act of 2010 (IPERA) and the Improper Payments
Elimination and Recovery Improvement Act of 2012 (IPERIA), and OMB Circular No. A-123, Appendix C,
the Department is required to report the status and recovery of improper payments to the President and
Congress in the following program categories:
• Civilian Pay
• Commercial Pay
• Military Health Benefits
• Military Pay
• Military Retirement
• Travel Pay
IPIA defines improper payments as any payments that should not have been made or that was made
in an incorrect amount (i.e., overpayment or underpayment) to an eligible recipient. The definition also
includes any payment that was made to an ineligible recipient or for an ineligible good or service, or
payments for goods or services not received, or when an agency's review is unable to discern whether a
payment was proper as a result of insufficient or lack of documentation.
The Department is committed to improving payment accuracy in all of its programs. Each DoD
disbursing activity and reporting component is committed to identifying the root causes of improper
payments, establishing appropriate sampling methodologies, developing and implementing corrective
action plans, and monitoring to ensure prevention of improper payments and compliance with IPERA. In

FY 2019, the Department accomplished the following to increase the level of oversight on improper
payments:
• Implemented a more thorough review of military payroll payments;

• Developed a more thorough review of civilian payroll payments to be implemented in FY 2020;
and
• Assessed additional payments (such as transportation, purchase card, civilian mariner payroll, and
academy cadet stipends) for risk of improper payments.
The Department has an improper payments estimation and reporting process that has been in place
for many years, and has been iteratively improved by numerous corrective actions to prevent and reduce
improper payments. Preventing and recovering improper payments are among the top financial
management priorities of the Department. Detailed information regarding improper payments is located in
Other Information.
Prompt Payment Act
The Prompt Payment Act (PPA) requires federal agencies to pay vendors timely and to pay interest
penalties when payments are made late. The Department complies with the PPA when applicable by statute
and regulation and within the terms of the contract. DFAS is responsible for consolidating interest penalty
data for the Department; however, each DoD Component is responsible for capturing, validating, and
explaining the results of their data.
The Department tracks timely payments through established metrics for interest penalties for late
payments to contractors and vendors. The Department’s goal is to average $90 or less in interest dollars
paid per million PPA dollars disbursed monthly across all applicable contracts. This year, the Department
paid an average of $135.51 per million PPA dollars disbursed monthly. The Department is researching the
root causes for this deficiency and implementing Department-wide solutions to exceed the goal in the
following year.
U.S. Marine Corps Cpl. Katye Spivey, a network administrator with 11th Marine Regiment, 1st Marine Division, practices sword manual
for a Command Sponsored Corporals Course (CSCC), at Marine Corps Base Camp Pendleton, California, June 17, 2019.
U.S. Marine Corps Photo by Cpl. Teagan Fredericks

FY 2019
Financial Section
Message from the Under Secretary of

Defense (Comptroller)/Chief Financial
Officer 51
Independent Auditor’s Report 53
Principal Financial Statements and
Notes 75
Required Supplementary Stewardship
Information 165
Required Supplementary
Information 168
First Female F-35B Pilot
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Message from the
Under Secretary of Defense (Comptroller)/Chief Financial Officer
November 15, 2019
It is my privilege to join the Secretary of Defense in presenting the Department of Defense (DoD)
financial statements for Fiscal Year (FY) 2019, which are an integral part of the Department of Defense
Agency Financial Report for Fiscal Year 2019 (AFR). The objective of the financial statements and
accompanying information contained in the Financial Section of the AFR is to provide a comprehensive
view of the financial activities undertaken in support of the Department’s mission to deter war and protect
national security. Further, we believe these statements support our commitment to be transparent with and
accountable for the taxpayer resources entrusted to us. To fulfil this commitment, the annual audit regimen
and focus on remediating audit findings will endure as we pursue an irreversible positive change to DoD
culture.
In FY 2019, the Department continued its journey toward achieving an unmodified opinion by
undergoing its second annual full-scope financial statement audit. Though the DoD Office of Inspector
General, our independent auditor, issued a Disclaimer of Opinion, the audit continues to provide operational
value through the identification and correction of issues hampering our ability to capture, record, and report
financial activity. For example, the DoD Components developed more than 2,200 corrective action plans
in response to FY 2018 audit findings. Completing corrective actions helps support DoD personnel in
carrying out their important missions by addressing issues such as the accuracy and completeness of
military equipment records and the security of financial management systems. In this year’s audit, auditors
confirmed the Department successfully remediated approximately 400 audit findings from the FY 2018
audit. Information about specific issues identified during the audit, planned corrective actions, and
anticipated timeframes for resolving these issues are provided in the Other Information section of this
report.
I give my thanks to the Congress and the American public for entrusting us with the resources
necessary to protect our great nation. Additionally, I thank the civilian employees and military members
of our financial and functional communities for their hard work and dedication in addressing audit findings,
seeking opportunities for greater efficiency, and improving our business processes. The progress we
achieved to date, and will achieve going forward, would not be possible without their efforts. We look
forward to working through future audits as we improve the quality and reliability of our financial
information, as well as the efficiency and effectiveness of our operations.
Elaine McCusker
Acting
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PRINCIPAL FINANCIAL STATEMENTS AND NOTES

The principal financial statements are prepared to report the financial position and results of
operations of the Department of Defense (DoD or the Department), pursuant to the requirements of
title 31, United States Code, section 3515(b) (31 U.S.C. § 3515(b)). The statements are prepared from the
accounting records of the Department in accordance with the formats prescribed by Office of Management
and Budget (OMB) Circular No. A-136 and, to the extent possible, with U.S. Generally Accepted
Accounting Principles for federal entities as prescribed by the Federal Accounting Standards Advisory
Board (FASAB). The statements, in addition to supporting financial reports, are used to monitor and control
budgetary resources. The statements should be read with the realization that they are for a component of
the U.S. Government.
The principal financial statements of the Department include the four financial statements described
in Table 1.
Table 1. Principal Financial Statements
Statement Information Provided
Reflects the Department’s financial position as of the statement date

(September 30, 2018). The assets reflect the amount of future economic benefits
Balance Sheet owned or managed by the Department. The liabilities reflect amounts owed by
the Department. The net position is the difference between the assets and
liabilities.
Shows, by major program, the components of the net cost of the Department’s
Statement of Net Cost operations for the period. Net cost is equal to the gross cost incurred by the
Department less any exchange revenue earned from its activities.
Presents the sum of the unexpended appropriations provided to the Department

that remain unused at the end of the fiscal year and the cumulative results of the
Statement of Changes Department's operations since inception. The statement focuses on how the
in Net Position Department's net cost of operations is financed. The resulting financial position
represents the difference between assets and liabilities as shown on the
consolidated balance sheet.
Provides information about how budgetary resources were made available as

well as their status at the end of the period. It is the only financial statement
exclusively derived from the Department’s budgetary general ledger in
Statement of Budgetary
accordance with budgetary accounting rules. The Statement of Budgetary
Resources
Resources is the only principal financial statement prepared on a combined,
rather than consolidated, basis. As such, all intra-entity transactions are
included in the balances reported on the statement.

Financial Section
Department of Defense Agencywide

Consolidated Balance Sheet
As of September 30, 2019 and 2018
($ in millions)
Restated
2019 2018
(Unaudited) (Unaudited)
Assets (Note 2)
Intragovernmental:
Fund Balance with Treasury (Note 3) $ 607,555.3 $ 580,213.8
Investments (Note 5) 1,187,609.0 1,091,764.4
Accounts Receivable (Note 6) 2,025.2 1,951.6
Other Assets (Note 10) 1,106.5 961.5
Total Intragovernmental Assets 1,798,296.0 1,674,891.3
Cash and Other M onetary Assets (Note 4) 918.3 968.0

Accounts Receivable, Net (Note 6) 5,894.5 5,694.1
Loans Receivable (Note 7) 1,738.7 1,697.4
Inventory and Related Property, Net (Note 8) 291,489.7 275,678.4
General Property, Plant and Equipment, Net (Note 9) 768,558.4 758,829.1
Investments (Note 5) 3,511.6 3,511.6
Other Assets (Note 10) 19,543.1 28,374.4
Total Assets $ 2,889,950.3 $ 2,749,644.3
S tewardship Property, Plant and Equipment (Note 9)
Liabilities (Note 11)

Intragovernmental:
Accounts Payable $ 1,544.3 $ 1,914.1
Debt (Note 12) 1,714.1 1,685.7
Other Liabilities (Note 15 & 17) 7,777.0 7,403.7
Total Intragovernmental Liabilities 11,035.4 11,003.5
Accounts Payable 39,682.5 29,222.8

M ilitary Retirement and Other Federal 2,596,371.8 2,415,346.8
Employment Benefits (Note 13)
Environmental and Disposal Liabilities (Note 14) 76,124.9 70,411.4
Loan Guarantee Liability (Note 7) 50.7 58.4
Other Liabilities (Note 15 and Note 17) 36,758.2 38,017.8
Total Liabilities 2,760,023.5 2,564,060.7
Commitments and Contingencies (Note 17)
Net Position (Consolidated Totals)

Unexpended Appropriations - Other Funds 545,168.2 529,803.7
Cumulative Results of Operations - Dedicated 30,331.1 27,734.0

Collections (Note 18)
Cumulative Results of Operations - Other Funds (445,572.5) (371,954.1)
Total Net Position 129,926.8 185,583.6
Total Liabilities and Net Position $ 2,889,950.3 $ 2,749,644.3
The accompanying notes are an integral part of these statements.

Financial Section

Consolidated Statement of Net Cost
For the Years Ended September 30, 2019 and 2018
($ in millions)
Restated
2019 2018
Gross Program Costs:
Military Retirement Benefits $ 106,422.7 $ 104,973.1
Civil Works 11,594.9 12,603.8
Military Personnel 150,995.7 145,255.3
Operations, Readiness & Support 297,033.2 259,690.3
Procurement 126,512.6 112,506.4
Research, Development, Test & Evaluation 104,654.5 88,386.3
Family Housing & Military Construction 25,123.1 11,714.5
Total Gross Program Costs 822,336.7 735,129.7
Less: Earned Revenue (90,502.2) (90,483.6)
Net Program Costs Before Losses/(Gains) from Actuarial 731,834.5 644,646.1

Assumption Changes for Military Retirement Benefits
Losses/(Gains) from Actuarial Assumption Changes for 138,808.5 16,735.0

Military Retirement Benefits
Net Cost of Operations $ 870,643.0 $ 661,381.1

Financial Section

Consolidated Statement of Changes in Net Position
($ in millions)
Restated
2019 2018
Une xpe nde d Appropriations
Beginning Balance (Includes Funds from Dedicated Collections (See Note 18) $ 529,803.7 $ 457,916.0
Prior Period Adjustments:
Changes in Accounting Principles - -
Corrections of Errors - -
Beginning balances, as adjusted (Includes Funds from $ 529,803.7 $ 457,916.0
Dedicated Collections of $0.0 in FY 2019 and $0.0 in FY 2018) - (Note 18)
Budgetary Financing Sources:

Appropriations Received 802,827.9 794,788.0
Appropriations T ransferred In/Out 59.2 221.8
Other Adjustments (22,533.9) (20,876.0)
Appropriations Used (764,988.7) (702,246.1)
T otal Budgetary Financing Sources (Includes Funds from Dedicated Collections
of $0.0 in FY 2019 and $0.0 in FY 2018) - (Note 18) 15,364.5 71,887.7
Total Une xpe nde d Appropriations (Includes Funds from Dedicated Collections of
$0.0 in FY 2019 and $0.0 in FY 2018) - (Note 18) 545,168.2 529,803.7
C umulative Re sults of O pe rations

Beginning Balance (344,220.1) (390,109.0)
Prior Period Adjustments:
Changes in Accounting Principles 4,277.8 (2,461.7)
Corrections of Errors 7,250.4 -
Beginning Balance, as adjusted (Includes Funds from Dedicated Collections of
$27,734.0 in FY 2019 and $25,574.5 in FY 2018 Restated) - (Note 18) (332,691.9) (392,570.7)
Budgetary Financing Sources:

Other Adjustments (210.8) (734.2)
Appropriations Used 764,988.7 702,246.1
Nonexchange Revenue 3,997.6 3,736.7
Donations and Forfeitures of Cash and Cash Equivalents 137.5 480.3
T ransfers In/Out Without Reimbursement 137.5 (188.2)
Other budgetary financing sources (2,521.5) (3,490.4)
Other Financing Sources

Donations and Forfeitures of Property - 19.8
T ransfers In/Out Without Reimbursement 46.4 23.8
Imputed Financing from Costs Absorbed by Others 5,609.8 5,309.1
Other 15,908.3 2,328.7
T otal Financing Sources (Includes Funds from Dedicated Collections of

$3,649.9 in FY 2019 and $3,540.8 FY 2018, Restated)-(Note 18) 788,093.5 709,731.7
Net Cost of Operations (Includes Funds from Dedicated Collections of
($1,052.8 in FY 2019 and $1,381.3 in FY 2018)-(Note 18) 870,643.0 661,381.1
Net Change (82,549.5) 48,350.6
C umulative Re sults of O pe rations (Includes Funds from Dedicated Collections of
$30,331.1 in FY 2019 and $27,734.0 in FY 2018 (Restated)) (415,241.4) (344,220.1)
Ne t Position $ 129,926.8 $ 185,583.6

Financial Section

Combined Statement of Budgetary Resources
($ in millions)
Restated
2019 2018
Non-Budgetary Non-Budgetary
Credit Reform Credit Reform
Budgetary Budgetary
Financing Financing
Account Account
Budgetary Resources
Unobligated Balance from Prior Year Budget $ 226,768.1 $ 69.0 $ 181,008.2 $ 85.1
Authority, Net (Discretionary and M andatory)
Appropriations (Discretionary and M andatory) 874,378.1 - 863,583.0 -
Borrowing Authority (Discretionary and M andatory) - 63.3 - 55.4
Contract Authority (Discretionary and M andatory) 86,854.4 - 88,428.1 -
Spending Authority from Offsetting Collections 112,965.6 56.8 119,413.9 61.6
(Discretionary and M andatory)
Total Budgetary Resources $ 1,300,966.2 $ 189.1 $ 1,252,433.2 $ 202.1
S tatus of Budgetary Resources

New Obligations and Upward Adjustments (Total) $ 1,115,940.2 $ 129.2 $ 1,054,209.3 $ 133.1
Unobligated Balance, End of Year:
Apportioned, Unexpired Accounts 157,154.3 - 165,702.9 -
Exempt from Apportionment, Unexpired 4,040.4 - 3,797.2 -
Accounts
Unapportioned, Unexpired Accounts 1,128.2 59.9 1,011.6 69.0
Unexpired Unobligated Balance, End of Year 162,322.9 59.9 170,511.7 69.0
Expired Unobligated Balance, End of Year 22,703.1 - 27,712.2 -
Unobligated Balance, End of Year (Total) 185,026.0 59.9 198,223.9 69.0
Total Budgetary Resources $ 1,300,966.2 $ 189.1 $ 1,252,433.2 $ 202.1
Outlays, Net
Outlays, Net (Total) (Discretionary and M andatory) $ 828,633.3 $ 37.6 $ 763,216.0 $ 71.2
Distributed Offsetting Receipts (-) (107,410.1) - (101,973.1) -
Agency Outlays, Net (Discretionary and Mandatory) $ 721,223.2 $ 37.6 $ 661,242.9 $ 71.2

Financial Section
Notes to the Financial Statements (Unaudited)

Note 1. Significant Accounting Policies ................................................................................................. 81
Note Disclosures Related to the Balance Sheet
Note 2. Non-Entity Assets ...................................................................................................................... 95
Note 3. Fund Balance with Treasury....................................................................................................... 96
Note 4. Cash and Other Monetary Assets ............................................................................................... 98
Note 5. Investments and Related Interest................................................................................................ 99
Note 6. Accounts Receivable, Net ........................................................................................................ 101
Note 7. Direct Loan and Loan Guarantees, Non-Federal Borrowers .................................................... 102
Note 8. Inventory and Related Property................................................................................................ 108
Note 9. General PP&E, Net .................................................................................................................. 112
Note 10. Other Assets ........................................................................................................................... 115
Note 11. Liabilities Not Covered by Budgetary Resources .................................................................. 116
Note 12. Debt ........................................................................................................................................ 118
Note 13. Military Retirement and Other Federal Employment Benefits .............................................. 119
Note 14. Environmental and Disposal Liabilities ................................................................................. 125
Note 15. Other Liabilities...................................................................................................................... 128
Note 16. Leases ..................................................................................................................................... 131
Note 17. Commitments and Contingencies ........................................................................................... 133
Note 18. Funds from Dedicated Collections ......................................................................................... 135
Note 19. General Disclosures Related to the Statement of Net Cost…………………………………….139

Note 20. Disclosures Related to the Statement of Changes in Net Position……………………………..141
Note 21. Disclosures Related to the Statement of Budgetary Resources…………………………………144
Note Disclosures Not Pertaining to a Specific Statement

Note 22. Disclosures Related to Incidental Custodial Collections........................................................ 149
Note 23. Fiduciary Activities ................................................................................................................ 150
Note 24. Reconciliation of Net Cost to Net Outlays ............................................................................. 151
Note 25. Public-Private Partnerships .................................................................................................... 153
Note 26. Disclosure Entities and Related Parties .................................................................................. 156
Note 27. Reclassification of Balance Sheet, Statement of Net Cost, and Statement of Changes in Net
Position for Compilation in the U.S. Government wide Financial Report ............................ 158
Note 28. Restatements........................................................................................................................... 164
Required Supplementary Stewardship Information………………………………………………………165

Required Supplementary Information……………………………………………………………………168

Financial Section
Note 1. Significant Accounting Policies

A. Reporting Entity
The Department of Defense (Department or DoD) includes the Office of the Secretary of Defense
(OSD), Joint Chiefs of Staff (JCS), DoD Office of the Inspector General (DoD OIG), Military Departments,
Defense Agencies, DoD Field Activities, and Combatant Commands, which are considered, and may be
referred to as, DoD Components. The Military Departments consist of the Departments of the Army, the
Navy (of which the Marine Corps is a component), and the Air Force. Appendix A provides a list of the
components which comprise the Department’s reporting entity for the purposes of the
consolidated/combined financial statements
B. Mission of the Reporting Entity
The Department was established by the National Security Act of 1947. Since the creation of
America’s first army in 1775, the Department and its predecessor organizations have evolved into a global
presence with a worldwide infrastructure dedicated to defending the United States (U.S.) by deterring and
defeating aggression and coercion in critical regions.
C. Basis of Presentation
The financial statements have been prepared to report the financial position and results of DoD
operations, as required by the Chief Financial Officers Act of 1990, as amended and expanded by the
Government Management Reform Act of 1994 and other applicable legislation. The financial statements
have been prepared from the accounting records of the Department in accordance with the formats
prescribed by Office of Management and Budget (OMB) Circular No. A-136 , Financial Reporting
Requirements, and, to the extent possible, in accordance with U.S. Generally Accepted Accounting
Principles (GAAP) for federal entities as prescribed by the Federal Accounting Standards Advisory Board
(FASAB). The financial statements account for all resources for which the Department is responsible, unless
otherwise noted. Accounting standards allow certain presentations and disclosures to be modified, if
needed, to prevent the disclosure of classified information.
The Department is unable to fully comply with all elements of U.S. GAAP and
OMB Circular No. A-136 due to the limitations of financial and non-financial processes and systems that
support the financial statements. The Department derives reported values and information for major asset
and liability categories largely from non-financial systems, such as inventory and logistics systems. These
systems were designed to support reporting requirements for maintaining accountability over assets and
reporting the status of federal appropriations rather than preparing financial statements in accordance with
U.S. GAAP. The Department continues to implement process and system improvements addressing these
limitations.
In accordance with FASAB Statement of Federal Financial Accounting Standards (SFFAS) 47,
Reporting Entity, in Note 26, Disclosure-Entities and Related-Parties, the Department is disclosing its
relationships with Department-sponsored Federally Funded Research and Development Centers and DoD
Nonappropriated Fund Instrumentalities.

Financial Section
D. Basis of Accounting
The Department’s financial statements and supporting trial balances are compiled from the
underlying financial data and trial balances of the DoD Components and their sub-entities. The underlying
data is largely derived from budgetary transactions (e.g., obligations, disbursements, and collections) from
non-financial feeder systems and accruals made for major items such as payroll expenses, accounts payable,
and environmental liabilities.
The Department presents the Balance Sheet, Statement of Net Cost, and Statement of Changes in
Net Position on a consolidated basis, which is the summation of the DoD Components less the eliminations
of intradepartmental activity. The Statement of Budgetary Resources is presented on a combined basis,
which is the summation of the DoD Components; therefore intradepartmental activity has not been
eliminated. DoD financial transactions are recorded on both a proprietary accrual basis and a budgetary
basis of accounting. Under the proprietary accrual basis, revenues are recognized when earned and
expenses are recognized when incurred, without regard to the timing of receipt or payment of cash. Under
the budgetary basis, the legal commitment or obligation of funds is recognized in advance of the proprietary
accruals and in compliance with legal requirements and controls over the use of federal funds.
The Department is continuing to evaluate the effects that will result from fully adopting recent
accounting standards and other authoritative guidance issued by FASAB. The pronouncements listed below
are expected to have an impact on the Department’s financial statements; however, the Department is
currently unable to determine the full impact.
1. SFFAS 48, Opening Balances for Inventory, Operating Materials and Supplies, and Stockpile
Materials: Issued on January 27, 2016; Effective for periods beginning after September 30, 2016.
The Department plans to utilize deemed cost to value beginning balances for inventory and related
property (I&RP), as permitted by SFFAS 48. The Department has valued some of its I&RP using
deemed cost methodologies as described in SFFAS 48. However, systems required to account for
historical cost for I&RP in accordance with SFFAS 3, Accounting for Inventory and Related
Property, are not yet fully implemented. Therefore, the Department is not making an unreserved
assertion with respect to this line item.
2. SFFAS 50, Establishing Opening Balances for General Property, Plant, and Equipment: Amending
SFFAS 6, 10, and 23, and Rescinding SFFAS 35: Issued August 4, 2016; Effective for periods
beginning after September 30, 2016.
The Department plans to utilize deemed cost to value beginning balances for general property, plant
and equipment (GPP&E), as permitted by SFFAS 50. However, systems required to account for
historical cost for GPP&E in accordance with SFFAS 6, Accounting for Property, Plant and
Equipment, are not yet fully implemented. Therefore, the Department is not making an unreserved
assertion with respect to this line item.
3. SFFAS 53, Budget and Accrual Reconciliation: Amending SFFAS 7 and 24, and Rescinding
SFFAS 22: Issued October 27, 2017; Effective for periods beginning after September 30, 2018.
4. SFFAS 54, Leases: An Amendment of SFFAS 5, Accounting for Liabilities of the Federal
Government and SFFAS 6, Accounting for Property, Plant, and Equipment: Issued April 17, 2018;
Effective for periods beginning after September 30, 2020. Early adoption is not permitted.

Financial Section
5. Interpretation of SFFAS 9, Cleanup Cost Liabilities Involving Multiple Component Reporting

Entities: An Interpretation of SFFAS 5 & 6: Issued August 16, 2019; Effective for periods
beginning after September 30, 2019. Early adoption is permitted.
6. Technical Bulletin 2017-1, Intragovernmental Exchange Transactions: Issued November 1, 2017;
Effective upon issuance.
7. Technical Bulletin 2017-2, Assigning Assets to Component Reporting Entities: Issued
November 1, 2017; Effective upon issuance.
8. Technical Release 18, Implementation Guidance for Establishing Opening Balances: Issued
October 2, 2017; Effective upon issuance.
9. Staff Implementation Guidance 6.1: Clarification of Paragraphs 40-41 of SFFAS 6, Accounting for
Property, Plant, and Equipment, As Amended: Issued July 17, 2018; Effective upon issuance.
The Department has not recorded all transactions consistent with GAAP. The Department
continues to transition to systems that can produce GAAP compliant financial statements. The following
known transactions were not recorded consistent with GAAP and are believed to be materially misstated in
the financial statements (note: the below is not an exhaustive list):
1) Accounting errors recorded in prior years and impacting the current year financial
statements have not been recorded and corrected in accordance with GAAP.
2) Transactions that should have been recorded in prior years, were recorded in the current
year.
The financial statements should be read with the realization that they are for a component of the
U.S. Government, a sovereign entity. One implication of this is that liabilities cannot be liquidated without
legislation that provides resources and legal authority to do so.
E. Accounting for Intragovernmental and Intergovernmental Activities
Treasury Financial Manual (Treasury), Volume I, Part 2, Chapter 4700, provides guidance for
reporting and reconciling intragovernmental balances. Accounting standards require an entity to eliminate
intra-entity activity and balances from consolidated financial statements to prevent overstatement caused
by the inclusion of business activity between entity components. Intragovernmental costs and exchange
revenue represents transactions made between two reporting entities within the federal government. Costs
and earned revenues with the public represents exchange transactions made between the reporting entity
and a non-federal entity. The Department is implementing replacement systems and a standard financial
information structure incorporating the necessary elements to enable the Department to correctly report,
reconcile, and eliminate intragovernmental balances.
Goods and services are received from other federal agencies at no cost or at a cost less than the full
cost to the providing federal entity. Consistent with accounting standards, certain costs of the providing
entity that are not fully reimbursed by the Department are recognized as imputed cost in the Statement of
Net Cost, and are offset by imputed financing in the Statement of Changes in Net Position. Imputed
financing represents the cost paid on behalf of the Department by another federal entity. In accordance
with SFFAS 55, Amending Inter-entity Cost Provisions, the Department recognizes the general nature of
imputed costs only for business-type activities and other costs specifically required by OMB, including
(1) employee pension, post-retirement health, and life insurance benefits; (2) post-employment benefits for
terminated and inactive employees, to include unemployment and workers compensation under the Federal

Financial Section
Employees’ Compensation Act (FECA); and (3) losses in litigation proceedings that are paid from the
Treasury Judgement Fund. Unreimbursed costs of goods and services other than those identified above are
not included in the Department’s financial statements.
For additional information, see Note 19, General Disclosures Related to the Statement of Net Cost.
F. Non-Entity Assets
Non-entity assets are not available for use in the Department’s normal operations. The Department
has stewardship accountability and reporting responsibility for non-entity assets. An example of a non-
entity asset is the portion of Fund Balance with Treasury (FBwT) that consists of deposit and receipt funds.
For additional information, see Note 2, Non-Entity Assets.
G. Fund Balance with Treasury
The FBwT represents the aggregate amount of the Department’s available budget spending
authority available to pay current liabilities and finance future authorized purchases. The Department’s
monetary resources of collections and disbursements are maintained in Department of the Treasury
(Treasury) accounts. The disbursing offices of the Defense Finance and Accounting Service (DFAS), the
Military Departments, the U.S. Army Corps of Engineers (USACE), and the Department of State’s financial
service centers process the majority of the Department of Defense’s cash collections, disbursements, and
adjustments worldwide. Each disbursing station reports to the Treasury on checks issued, electronic fund
transfers, interagency transfers, and deposits.
In addition, DFAS and the USACE Finance Center report to the Treasury by appropriation on
interagency transfers, collections received, and disbursements issued. The Treasury records these
transactions to the applicable FBwT account.
For additional information, see Note 3, Fund Balance with Treasury.
H. Cash and Other Monetary Assets
Cash is the total of cash resources under the control of the Department, including coins, paper
currency, negotiable instruments, and amounts held for deposit in banks and other financial institutions.
Foreign currency consists of the total U.S. dollar equivalent of both foreign currency exchanged for U.S.
dollars and foreign currency received as payment for goods or services. Foreign currency is valued using
the Treasury prevailing rate of exchange. The TFM Volume I, Part 2, Chapter 3200 , provides guidance
for accounting and reporting foreign currency.
The majority of cash and all foreign currency is classified as “non-entity” and is restricted.
Amounts reported consist primarily of cash and foreign currency held by disbursing officers to carry out
their paying, collecting, and foreign currency accommodation exchange missions.
The Department conducts a significant portion of its operations overseas. Congress established a
special appropriations account to handle the gains and losses from foreign currency transactions for five
general fund appropriations: (1) operations and maintenance, (2) military personnel, (3) military
construction, (4) family housing operations and maintenance, and (5) family housing construction. The
gains and losses are calculated as the difference between the exchange rate at the date of payment and a
budget rate established at the beginning of each fiscal year. Foreign currency fluctuations related to other
appropriations require adjustments to the original obligation amount at the time of payment. The
Department does not separately identify foreign currency fluctuation transactions.

Financial Section
For additional information, see Note 4, Cash and Other Monetary Assets.
I. Investments and Related Interest
The Department reports investments in Treasury securities at cost, net of amortized premiums or
discounts. Premiums or discounts are amortized over the term of the investments using the effective interest
rate method or another method yielding similar results. The Department’s intent is to hold investments to
maturity unless they are needed to finance claims or otherwise sustain operations. Consequently, a
provision is not made for unrealized gains or losses on these securities.
The Department invests in non-marketable, market-based Treasury securities issued to federal
agencies by Treasury’s Bureau of the Fiscal Service. These securities are not traded on any financial
exchange but are priced consistently with publicly traded Treasury securities.
The Department’s net investments are held by various trust and special funds. These funds include
the Military Retirement Fund; Medicare-Eligible Retiree Health Care Fund; Support for U.S. Relocation to
Guam Activities; donations (gift funds); and Treasury managed trust funds reported by USACE including
the South Dakota Terrestrial Habitat Restoration, Inland Waterways, and Harbor Maintenance Trust Fund
accounts.
Other investments represent joint ventures with private developers constructing or improving
military housing on behalf of the Department under the authority of Military Housing Privatization
Initiative (MHPI), authorized by the National Defense Authorization Act (NDAA) for FY 2005.
For additional information, see Note 5, Investments and Related Interest.
J. Accounts Receivable
Accounts receivable from other federal entities or the public include reimbursement receivable,
claims receivable, and refunds receivable. Allowances for uncollectible accounts due from the public are
based upon factors such as aging of accounts receivable, debtor’s ability to pay, and payment history. The
Department does not recognize an allowance for estimated uncollectible amounts from other federal
agencies, as receivables from other federal agencies are considered to be inherently collectible.
The Department has fuel exchange agreements with foreign countries. These agreements allow the
Department to periodically offset the accounts receivable by the amount the Department owes to the same
foreign country. The accounts receivable for fuel exchange agreements are not included in the accounts
receivable balance.
For additional information, see Note 6, Accounts Receivable.
K. Direct Loans and Loan Guarantees
The Department operates a direct loan and loan guarantee program authorized by the
NDAA for FY 1996, which provides the Department with the authorities to work with the private sector to
obtain private lending, expertise, innovation, and provide housing more efficiently. The Department uses
these authorities to operate guarantees (both loan and rental), conveyance/leasing of existing property and
facilities, differential lease payments, investments (both limited partnerships and stock/bond ownership),
and direct loans to the extent of the sanctions which are defined in the Federal Credit Reform Act of 1990
(FCRA). FCRA governs all amended direct loan obligations and loan guarantee commitments made after
FY 1991 resulting in direct loans or loan guarantees.

Financial Section
The NDAA for FY 2005 provided permanent authorities to the MHPI.

The Department’s goals are to obtain private capital to leverage government dollars, make efficient
use of limited resources, and use a variety of private sector approaches to build and renovate military
housing faster and at a lower cost to taxpayers, to attract private lending, expertise, and innovation, and
provide housing more efficiently.
As required by SFFAS 2, Accounting for Direct Loans and Loan Guarantees, the present value of
the subsidy costs associated with direct loans and loan guarantees is recognized as costs in the year the
direct or guaranteed loan is disbursed.
OMB Circular No. A-11, Preparation, Submission, and Execution of the Budget, Part 5 and OMB
Circular No. A-136, specify disclosure requirements for government direct loans and loan guarantees.
For additional information, see Note 7, Direct Loans and Loan Guarantees.
L. Inventories and Related Property
The Department values substantially all of its inventory available and purchased for resale using
the moving average cost method. Inventory available and purchased for resale includes consumable spare
and repair parts, and repairable items owned and managed by the Department. This inventory is retained
to support military or national contingencies. Inventory held for repair is damaged inventory requiring
repair to make it suitable for sale. Often, it is more economical to repair these items rather than to procure
them. The Department often relies on weapon systems and machinery no longer in production. As a result,
the Department supports a process encouraging the repair and rebuilding of certain items. This repair cycle
is essential to maintaining readiness for a lethal joint force. Inventory Work-in-Process balances include
(1) costs related to the production or servicing of items, including direct material, labor, and applied
overhead; (2) the value of finished products or completed services yet to be placed in service; and
(3) munitions in production and depot maintenance work with associated costs incurred in the delivery of
maintenance services.
The Department manages only military or government-specific materiel under normal conditions.
Materiel is a unique term that relates to military force management, and includes items such as ships; tanks;
self-propelled weapons; aircraft; and related spares, repair parts, and support equipment. Items commonly
used in and available from the commercial sector are not managed in the Department’s materiel
management activities. Operational cycles are irregular and the military risks associated with stock-out
positions have no commercial parallel. The Department holds materiel based on military need and support
for contingencies.
Related property includes Operating Materials and Supplies (OM&S) and stockpile materiel.
OM&S, including munitions not held for sale, are valued using various methods including moving average
cost, standard price, historical cost, replacement price, and direct method. The Department uses both the
consumption method and the purchase method of accounting for OM&S. Centrally managed and stored
items, such as ammunition and engines, are generally recorded using the consumption method and are
reported on the Balance Sheet as OM&S. Under this method, materiel and supplies are expensed when
consumed. Many high-dollar items, such as aircraft engines, are categorized as OM&S rather than General
Equipment. The Department determined the recurring high dollar-value of OM&S in need of repair is
material to the financial statements and requires a separate reporting category.
OM&S are recognized at net realizable value through the use of an allowance account. For excess,
obsolete, and unserviceable (EOU) inventory transferred to the Defense Logistics Agency (DLA)

Financial Section
Disposition Services, the net realizable value will generally be zero. The net realizable value of EOU
disposed of through a Qualified Recycling Program or by other means other than a transfer to DLA is
estimated based on prior disposal proceeds for comparable EOU, buyer quotes, or other reasonable means.
For all types of inventory and related property, the Department, when applicable, will continue to
adopt SFFAS 48, which permits alternative methods in establishing opening balances. The FASAB issued
SFFAS 48, permitting alternative methods in establishing opening balances, effective for periods beginning
after September 30, 2016 with early implementation allowed. Some DoD Components used the deemed
cost measures from this standard for FY 2016; additional DoD Components used the deemed cost measures
from the standard in FY 2018 using a combination of standard price (selling price), latest acquisition cost,
estimated historical cost, and actual historical cost as the basis for valuation.
For additional information, see Note 8 Inventory and Related Property.
M. General Property, Plant and Equipment
The Department generally records General GPP&E at the estimated historical cost. When
applicable, the Department will continue to adopt SFFAS 50, which permits alternative methods in
establishing opening balances effective for periods beginning after September 30, 2016. Some DoD
Components used the alternative valuation methods from SFFAS 50 based on historical records such as
expenditure data, contracts, budget information, and engineering documentation. See Note 20, Disclosures
Related to the Statement of Changes in Net Position, for additional details about the Department’s
implementation of SFFAS 50.
General PP&E assets are capitalized when an asset has a useful life of two or more years and the
acquisition cost equals or exceeds the relevant capitalization threshold. The costs of
modifications/improvements to existing General PP&E assets are capitalized if they (1) extends the asset’s
useful life by two or more years, or increases the assets capability, or increases its capacity or size, and
(2) equals or exceeds the relevant capitalization threshold. The capitalization threshold for General PP&E
assets is $250 thousand for real property and general equipment, with the following exceptions:
DoD Entity Capitalization Threshold

Department of the Navy General Fund General Equipment $1 million
Department of the Air Force General Fund General $1 million
Equipment
Office of the Director of National Intelligence (ODNI) DoD $1 million
Members only
USACE Civil Works General PP&E assets, other than $25 thousand
buildings and structures related to hydropower projects
USACE Civil Works buildings and structures related to Capitalized regardless of
hydropower projects cost

Financial Section
Except for those related to USACE Civil Works and ODNI, these capitalization thresholds apply
to General PP&E asset acquisitions and modifications/improvements placed into service after
September 30, 2013; General PP&E assets acquired prior to October 1, 2013 were capitalized at prior
thresholds ($100 thousand for general equipment and $20 thousand for real property). However, in the
years leading up to the DoD entities making unreserved assertions under SFFAS 50, each DoD Entity may
apply the applicable capitalization threshold to its entire population of General PP&E retroactively,
irrespective of the capitalization thresholds in effect for the years prior to October 1, 2013. The Department
depreciates all General PP&E assets, other than land, on a straight-line basis.
The Department provides government-owned or leased General PP&E (Government-Furnished
Property (GFP)) to contractors for performing a contract, for which the Department must recognize the GFP
for accountability and financial reporting purposes.
Contactor-Acquired Property (CAP) is General PP&E acquired by a contractor on behalf of the
Department for performing a contract, where the government will ultimately hold the title to the General
PP&E. If the CAP has a useful life of at least two years and the value of the CAP meets or exceeds the
relevant capitalization threshold, federal accounting standards require the CAP to be reported on the
Department’s Balance Sheet when title passes to the Department or when the General PP&E is delivered
to the Department. For additional information, see Note 9, General Property, Plant and Equipment.
N. Other Assets
Other Assets include those assets, such as military and civil service employee pay advances, travel
advances, and certain contract financing payments not reported elsewhere on the Department’s Balance
Sheet. For advance payments recorded as assets, the Department properly expenses or capitalizes assets
when the related goods and services are received.
The Department conducts business with commercial contractors under two primary types of
contracts – fixed price and cost reimbursable. The Department may provide financing payments to
contractors to alleviate the potential financial burden from long-term contracts. Contract financing
payments are defined in the Federal Acquisition Regulation (FAR), Part 32, as authorized disbursements
to a contractor prior to acceptance of supplies or services by the Government. Contract financing payment
clauses are incorporated in the contract terms and conditions and may include advance payments,
performance-based payments, commercial advances and interim payments, progress payments based on
cost, and interim payments under certain cost-reimbursement contracts.
The Defense Federal Acquisition Regulation Supplement (DFARS) authorizes progress payments
based on a percentage or stage of completion only for construction of real property, shipbuilding and ship
conversion, alteration, or repair. Progress payments based on percentage or stage of completion are
reported as Construction in Progress. Contract financing payments do not include invoice payments,
payments for partial deliveries, lease and rental payments, or progress payments based on a percentage or
stage of completion.
For additional information, see Note 10, Other Assets.
O. Leases
Lease payments for the rental of equipment and operating facilities are classified as either capital
or operating leases. When a lease substantially transfers all the benefits and risks of ownership to the
Department (a capital lease) and the value equals or exceeds the relevant capitalization threshold, the
Department records the applicable asset as though purchased, with an offsetting liability, and records

Financial Section
depreciation on the asset. The Department records the asset and liability at the lesser of the present value
of the rental and other minimum lease payments during the lease term (excluding portions representing
executory costs paid to the lessor) or the asset’s fair market value. The discount rate for the present value
calculation is either the lessor’s implicit interest rate or the government’s incremental borrowing rate at the
inception of the lease. The Department, as the lessee, receives the use and possession of leased property
(e.g., real estate or equipment) from a lessor in exchange for payments of funds.
An operating lease does not substantially transfer all the benefits and risks of ownership to the
Department. Payments for operating leases are expensed over the lease term. Office space leases entered
into by the Department are the largest component of operating leases.
For additional information, see Note 16 Leases.
P. Liabilities
Liabilities represent the probable future outflow or other sacrifice of resources as a result of past
transactions or events. However, no liability can be paid by the Department absent proper budget authority.
Liabilities covered by budgetary resources are appropriated funds for which funding is otherwise available
to pay amounts due. Liabilities not covered by budgetary resources, for example future environmental
cleanup liability, represent amounts owed in excess of available appropriated funds or other amounts, where
there is no certainty that the appropriations will be enacted. Liabilities that are not funded by the current
year appropriation are classified as liabilities not covered by budgetary resources in Note 11, Liabilities Not
Covered by Budgetary Resources.
Q. Environmental and Disposal Liabilities
Environmental and disposal liabilities are estimated costs for the anticipated remediation, cleanup,
and disposal costs resulting from the use of the Department’s assets or operations. Consistent with
SFFAS 6, recognition of an anticipated environmental disposal liability begins when the asset is placed into
service. In accordance with SFFAS 5, non-environmental disposal liabilities are recognized when
management decides to dispose of an asset. In addition, the Department recognizes non-environmental
disposal liabilities for nuclear-powered military equipment when placed into service. These amounts are
not easily distinguishable and are developed in conjunction with environmental disposal costs.
For additional information, see Note 14, Environmental and Disposal Liabilities.
R. Other Liabilities
Other Liabilities includes:
Advances from Others which represent amounts received in advance for goods or services that have
not been fully rendered by the Department.
Deposit Funds and Suspense Accounts represent liabilities for receipts held in suspense temporarily
for distribution to another fund or entity, or held as an agent for others and paid at the direction of the owner.
Disbursing Officers Cash represents liabilities for currency on hand; cash on deposit at designated
depositories; cash in the hands of deputy disbursing officers, cashiers, and agents; negotiable instruments
on hand; and similar notes advanced from the Treasury under various authorities. Disbursing Officers Cash
is non-entity, restricted cash.
For information on Judgement Fund Liabilities, see Note 17, Commitments and Contingencies.

Financial Section
Accrued Payroll consists of salaries, wages, and other compensation earned by employees but
not disbursed as of September 30. The liability is estimated for reporting purposes based on historical
pay information.
Earned annual and other vested compensatory leave is accrued as it is earned and reported on the
Balance Sheet. The liability is reduced as leave is taken. Each year, the balances in the accrued leave
accounts are adjusted to reflect the liability at current pay rates and leave balances. Sick leave and other
types of non-vested leave are expensed when used.
The Federal Employees Compensation Act (FECA) (provides income and medical cost
protection to covered federal civilian employees injured on the job, employees who have incurred
work-related occupational diseases, and beneficiaries of employees whose deaths are attributable to
job-related injuries or occupational diseases. The FECA program is administered by the Department
of Labor (DOL), which pays valid claims and subsequently seeks reimbursement from the Department
for these paid claims.
The FECA liability consists of two elements. The first element, accrued FECA liability, is based
on claims paid by DOL but not yet reimbursed by the Department. The second element, actuarial FECA
liability, is the estimated liability for future benefit payments and is recorded as a component of federal
employee and veterans’ benefits. The actuarial FECA liability includes the expected liability for death,
disability, medical, and miscellaneous costs for approved compensation cases. The actuarial FECA liability
is not covered by budgetary resources and will require future funding.
SFFAS 51, Insurance Programs, established accounting and financial reporting standards for
insurance programs. Office of Personnel Management (OPM) administers insurance benefit programs
available for coverage to the Department’s civilian employees. The programs are available to Civilian
employees but employees do not have to participate. These programs include life, health, and long term
care insurance.
The life insurance program, Federal Employee Group Life Insurance (FEGLI) plan is a term life
insurance benefit with varying amounts of coverage selected by the employee. The Federal Employees
Health Benefits (FEHB) program is comprised of different types of health plans that are available to Federal
employees for individual and family coverage for healthcare. Those employees meeting the criteria for
coverage under FEHB may also enroll in the Federal Employees Dental and Vision Insurance Program
(FEDVIP) FEDVIP allows for employees to have dental insurance and vision insurance to be purchased on
a group basis.
The Federal Long Term Care Insurance Program (FLTCIP) provides long term care insurance to
help pay for costs of care when enrollees need help with activities they perform every day, or have a severe
cognitive impairment, such as Alzheimer’s disease. To meet the eligibility requirements for FLTCIP,
employees must be eligible to participate in FEHB. However, employees are not required to be enrolled in
FEHB.
OPM, as the administrating agency, establishes the types of insurance plans, options for coverage,
the premium amounts to be paid by the employees and the amount and timing of the benefit received. The
Department has no role in negotiating these insurance contracts and incurs no liabilities directly to the
insurance companies. Employee payroll withholding related to the insurance and employee matches are
submitted to OPM.

Financial Section
TRICARE is a worldwide health care program that provides coverage for Active and Reserve
Component Military Service members and their families, survivors, retirees, and certain former spouses.
TRICARE brings together the military hospitals and clinics worldwide with a network and non-network
TRICARE authorized civilian health care professionals, institutions, pharmacies, and suppliers to
provide access to health care services. TRICARE offers multiple health care plans. The Defense Health
Program serves as the program manager for TRICARE, providing oversight, payment, and management
of private sector care administered by contracted claims processors.
Custodial Liabilities represents liabilities for collections reported as nonexchange revenues where
the Department is acting on behalf of another federal entity.
Other Liabilities primarily consists of unemployment compensation liabilities.
For additional information, see Note 15, Other Liabilities.
S. Commitments and Contingencies
The Department recognizes contingent liabilities on the Balance Sheet for legal actions where
management considers an adverse decision to be probable and the loss amount is reasonably estimable.
These legal actions are estimated and disclosed in Note 17, Commitments and Contingencies. However,
there are cases where amounts have not been accrued or disclosed because the likelihood of an adverse
decision is considered remote or the amount of potential loss cannot be estimated.
The Department executes project agreements pursuant to the framework cooperative agreement
with foreign governments. All of these agreements give rise to obligations that are fully reported in the
DoD financial statements, pursuant to legal authority, appropriated funds, and none are contingent. The
Department does not enter into treaties and other international agreements that create contingent liabilities.
The Department does not have environmental contingencies. The legal environmental cases are
recorded as legal contingencies.
For additional information, see Note 17, Commitments and Contingencies.
T. Military and Civilian Retirement Benefits
The Department applies SFFAS 33, Pensions, Other Retirement Benefits, and Other
Postemployment Benefits: Reporting the Gains and Losses from Changes in Assumptions and Selecting
Discount Rates and Valuation Dates, in selecting the discount rate and valuation date used in estimating
Military Retirement Benefit actuarial liabilities. In addition, gains and losses from changes in long-term
assumptions used to estimate the actuarial liability are presented separately on the Statement of Net Cost.
Refer to Note 13, Military Retirement and Other Federal Employment Benefits and Note 19, General
Disclosures Related to the Statement of Net Cost, for additional information.
As an employer entity, the Department recognizes the annual cost of its civilian employees’
pension, other retirement benefit plans, and other postemployment benefit plans (plans) including health
and life insurance plans. However, as the administering entity, OPM is responsible for executing the benefit
plans including accounting for plan assets, liabilities and associated gains and losses. Accordingly, the
Department does not display gains and losses from changes in long-term assumptions used to measure these
liabilities on the Statement of Net Cost.
The majority of DoD employees hired prior to January 1, 1984, participate in the Civil Service
Retirement System (CSRS), while the majority of DoD employees hired after December 31, 1983 are

Financial Section
covered by the Federal Employees Retirement System (FERS) and Social Security. Employees hired
between January 1, 1984 and December 31, 2012 are covered by the FERS basic annuity benefit. A
primary feature of FERS is that it also offers a defined contribution plan (Thrift Savings Plan) to which the
Department automatically contributes one percent of base pay and matches employee contributions up to
an additional four percent of base pay. The Department also contributes to the employer’s Social Security
matching share for FERS participants.
Similar to CSRS and FERS, OPM reports the liability for future payments to retired employees
who participate in the Federal Employees Health Benefits Program and Federal Employees Group Life
Insurance Program. The Department reports both the full annual cost of providing these Other Retirement
Benefits (ORB) for its retired employees and reporting contributions made for active employees. In
addition, the Department recognizes the cost for Other Post-employment Benefits (OPEB), including all
types of benefits provided to former or inactive (but not retired) employees, their beneficiaries, and covered
dependents.
The difference between the full annual cost of CSRS and FERS retirement, ORB, and OPEB
and the amount paid by the Department is recorded as an imputed cost and offsetting imputed financing
source in the accompanying financial statements.
U. Revenues and Other Financing Sources
The Department receives congressional appropriations and funding as general, working capital
(revolving), trust, and special funds. The Department uses these appropriations and funds to execute its
missions and subsequently report on resource usage.
General funds are used for collections not earmarked by law for a specific purposes, the proceeds
of general borrowing, and the expenditure of these moneys. DoD appropriations funding covers costs
including personnel, operations and maintenance, research and development, procurement, and military
construction.
Working capital funds (WCF) conduct business-like activities and receive funding to establish an
initial corpus through an appropriation or a transfer of resources from existing appropriations or funds. The
corpus finances operations and transactions flowing through the fund. Each WCF obtains the goods and
services sold to customers on a reimbursable basis and maintains the corpus. Reimbursable receipts fund
future operations and generally are available in their entirety for use without further congressional action.
At various times, Congress provides additional appropriations to supplement the WCF as an infusion of
cash when revenues are inadequate to cover costs within the corpus. Depot Maintenance and Ordnance
WCF activities recognize revenue according to the percentage of completion method. Supply Management
WCF activities recognize revenue from the sale of inventory items.
Trust funds contain receipts and expenditures of funds held in trust by the government for use in
carrying out specific purposes or programs in accordance with the terms of the donor, trust agreement, or
statute. Special fund accounts are used to record government receipts reserved for a specific purpose and
the expenditure of these receipts. Certain trust and special funds may be designated as Funds from
Dedicated Collections. Funds from Dedicated Collections are financed by specifically identified revenues;
are required by statute to be used for designated activities, benefits, or purposes; and remain available over
time. In accordance with SFFAS 27, Identifying and Reporting Funds from Dedicated Collections, as
amended by SFFAS 43, Funds from Dedicated Collections: Amending Statement of Federal Financial
Accounting Standards 27, Identifying and Reporting Earmarked Funds, the Department separately accounts

Financial Section
for and reports on the receipt, use, and retention of revenues and other financing sources for Funds from
Dedicated Collections in Note 18, Funds from Dedicated Collections.
Deposit funds are used to record amounts held temporarily until paid to the appropriate government
or public entity. They are not DoD funds and, as such, are not available for the Department’s operations.
The Department is acting as an agent or custodian for funds awaiting distribution.
In accordance with SFFAS 7, Accounting for Revenue and Other Financing Sources and Concepts
for Reconciling Budgetary and Financial Accounting, the Department recognizes nonexchange revenue
when there is a specifically identifiable, legally enforceable claim to the cash or other assets of another
party that will not directly receive value in return.
Deferred revenue is recorded when the Department receives payment for goods or services which
have not been fully rendered. Deferred revenue is reported as a liability on the Balance Sheet until earned.
The Department does not include non-monetary support provided by U.S. allies for common
defense and mutual security in amounts reported in the Statement of Net Cost. The U.S. has cost sharing
agreements with countries, through mutual or reciprocal defense agreements, where U.S. troops are
stationed or where the U.S. Fleet is in a port.
V. Recognition of Expenses
For financial reporting purposes, the Department’s policy requires the recognition of operating
expenses in the period incurred. Estimates are made for major items such as payroll expenses, accounts
payable, environmental liabilities, and unbilled revenue.
In the case of OM&S, operating expenses are generally recognized when the items are purchased.
The Department has issued guidance under which DoD Components may expense OM&S using the
purchase method of accounting rather than the consumption method if certain operational and other criteria,
as applicable, are met, as set forth under U.S. GAAP. Under the consumption method, OM&S would be
expensed when consumed.
W. Treaties for Use of Foreign Bases
The Department uses land, buildings, and other overseas facilities obtained through various
international treaties and agreements negotiated by the Department of State. The Department of Defense
purchases capital assets overseas with appropriated funds; however, the host country retains title to the land
and capital improvements. Treaty terms generally allow the Department continued use of these properties
until the treaties expire. In the event treaties or other agreements are terminated, use of the foreign bases is
prohibited and losses are recorded for the value of any irretrievable capital assets. The settlement due to
the United States or host nation is negotiated and takes into account the value of capital investments and
may be offset by environmental cleanup costs, if applicable.
X. Use of Estimates
The Department’s management makes assumptions and reasonable estimates in the preparation of
financial statements based on current conditions which may affect the reported amounts. Actual results
could differ materially from the estimated amounts. Significant estimates include such items as
environmental liabilities, year-end accruals of accounts payable, and actuarial liabilities related to workers’
compensation.

Financial Section
Y. Parent-Child Reporting
The Department is a party to allocation transfers with other federal agencies as a transferring
(parent) entity or receiving (child) entity. An allocation transfer is an entity’s legal delegation of authority
to obligate budget authority and outlay funds on its behalf. Generally, all financial activity related to
allocation transfers (e.g., budget authority, obligations, outlays) is reported in the financial statements of
the parent entity. Exceptions to this general rule apply to specific funds for which OMB has directed that
all activity be reported in the financial statements of the child entity.
The Department receives allocation transfers from the following agencies: Departments of
Agriculture, Interior, Energy, and Transportation; the Appalachian Regional Commission; and the Federal
Highway Administration.
Additionally, the Department also receives allocation transfers from certain funds meeting the
OMB exception and all related activity is included in the Department’s financial statements. These funds
include South Dakota Terrestrial Wildlife Habitat Restoration, Inland Waterways, and Harbor Maintenance.
As a parent, the Department reports in these financial statements certain funds allocated to the
Departments of Transportation and Agriculture.
Z. Transactions with Foreign Governments and International Organizations
The Department is implementing the administration’s foreign policy objectives under the
provisions of the Arms Export Control Act of 1976 by facilitating the sale of U.S. Government-approved
defense articles and services to foreign partners and international organizations. The cost of administering
these sales is required to occur at no cost to the Federal Government. Payment in U.S. dollars is required
in advance for each sale.
AA. Fiduciary Activities
Fiduciary activities are the collection or receipt, and the management, protection, accounting,
investment, and disposition by the Department of cash and other assets in which non-federal individuals or
entities have an ownership interest that the Department must uphold. Fiduciary cash and other assets are
not assets of the Department and are not recognized on the Balance Sheet. For additional information, see
Note 23, Fiduciary Activities.
BB. Tax Exempt Status
As an agency of the federal government, the Department is exempt from all income taxes imposed
by any governing body whether it is a federal, state, commonwealth, local, or foreign government.
CC. Subsequent Events
Subsequent events have been evaluated from the balance sheet date through November 15, 2019,
which is the date the financial statements were available to be issued.

Financial Section
Note 2. Non-Entity Assets

Non-entity assets are not available for use in the Department’s normal operations. The Department
has stewardship accountability and reporting responsibility for non-entity assets.
Table 2. Non-Entity Assets
As of September 30 2019 2018

($ in millions)
Intragovernmental Assets
Fund Balance with Treasury $ 3,135.3 $ 2,849.2
Accounts Receivable 4.5 0.5
Total Intragovernmental Assets 3,139.8 2,849.7
Non-Federal Assets
Cash and Other M onetary Assets 827.1 856.3
Accounts Receivable 2,194.6 2,205.7
Total Non-Federal Assets 3,021.7 3,062.0
Total Non-Entity Assets 6,161.5 5,911.7

Total Entity Assets 2,883,788.8 2,743,732.6
Total Assets $ 2,889,950.3 $ 2,749,644.3
Intragovernmental Assets
Fund Balance with Treasury (FBWT) consists primarily of deposit funds and receipt accounts.
Deposit funds represent amounts held temporarily until paid to the appropriate party. Receipt accounts
represent amounts collected on behalf of the Treasury General Fund.
Accounts Receivable are primarily amounts necessary to cover surcharge liabilities to be collected
on behalf of others.
Non-Federal Assets
Cash and Other Monetary Assets consist primarily of cash held by disbursing officers to carry out
payment, collection, and foreign currency exchanges.
Accounts Receivable consists of amounts associated with canceled year appropriations, and
interest, fines, and penalties due on debt. Generally, the Department cannot use the proceeds and must
remit them to the Treasury unless permitted by law.

Financial Section
Note 3. Fund Balance with Treasury

The Treasury records cash receipts and disbursements on the Department’s behalf; funds are
available only for the purposes for which they were appropriated. The Department’s Fund Balances with
Treasury consist of appropriation accounts, revolving funds, trust accounts, special funds and other fund
types.
Restatement
The Department corrected a $921.6 million understatement in Unobligated Balance, Available and
an offsetting overstatement in Unobligated Balance, Unavailable. The Total FBWT balance did not
change. See Note 28, Restatements, for further information.
Table 3. Status of Fund Balance with Treasury
Restated
($ in millions)
Unobligated Balance
Available $ 161,194.7 $ 169,500.0
Unavailable 1,099,882.1 1,008,337.0
Total Unobligated Balance 1,261,076.8 1,177,837.0
Obligated Balance Not Yet Disbursed 544,726.4 500,397.7
Non-Budgetary FBWT
Clearing Accounts 16.5 (260.9)
Deposit funds 3,183.4 2,910.2
Non-entity and other 281.2 676.6
Total Non-Budgetary FBWT 3,481.1 3,325.9
Non-FBWT Budgetary Accounts

Investments-Treasury-Securities (1,082,792.7) (985,638.6)
Unfilled Customer Orders without (73,853.7) (74,792.5)
Advance
Contract Authority (30,956.3) (25,119.4)
Borrowing Authority (79.9) (111.1)
Receivables and Other (14,046.4) (15,685.2)
Total Non-FBWT Budgetary Accounts (1,201,729.0) (1,101,346.8)
Total FBWT $ 607,555.3 $ 580,213.8
The Status of FBWT, as presented in Table 3, reflects the reconciliation between the budgetary
resources supporting FBWT (largely consisting of Unobligated Balance and Obligated Balance Not Yet
Disbursed) and those resources provided by other means. The Total FBWT reported on the Balance Sheet
reflects the budgetary authority remaining for disbursements against current or future obligations.
Unobligated Balance is classified as available or unavailable and represents the cumulative amount
of budgetary authority set aside to cover future obligations. The available balance consists primarily of the
unexpired, unobligated balance that has been apportioned and available for new obligations. The
unavailable balance consists primarily of funds invested in Treasury securities and are temporarily
precluded from obligation by law. Certain unobligated balances are restricted for future use and are not

Financial Section
apportioned for current use. Unobligated balances for trust fund accounts are restricted for use by public
laws establishing the funds.
Obligated Balance Not Yet Disbursed represents funds obligated for goods and services but not
paid.
Non-Budgetary FBWT includes accounts without budgetary authority, such as deposit funds,
unavailable receipt accounts, clearing accounts, and Non-Entity FBWT.
The Non-FBWT Budgetary Accounts line reduces budgetary resources to account for investments
in Treasury securities, unfilled customer orders without advance, contract and borrowing authority, and
receivables.
Treasury securities provide the Department with budgetary authority and enables the Department
to access funds to make future benefit payments or other expenditures. The Department must redeem these
securities before they become part of the FBWT.
Contract Authority and Reimbursable Authority (Spending Authority from Anticipated
Collections) does not increase the FBWT when initially posted, but does provide budgetary resources.
FBWT increases only after the customer payments for services or goods rendered have been collected.
Conversely, appropriations received increase FBWT upon receipt of the budget authority.
Unfilled Customer Orders Without Advance and Reimbursements and Other Income Earned -
Receivable provide budgetary resources when recorded. FBWT is only increased when reimbursements
are collected, not when orders are accepted or have been earned.
Total FBWT does not include funds held as a result of allocation transfers received from other
federal agencies and fiduciary activities. The Department received allocation transfers from other federal
agencies for execution on their behalf in the amount of $357.3 million in FY 2019 and $399.2 million in
FY 2018. In addition, the Department held cash and cash equivalents for fiduciary activities in the amount
of $67.0 million in FY 2019 and $77.9 million in FY 2018; these amounts are not reported in FBWT in
accordance with SFFAS 31.
The FBWT reported in the financial statements has been adjusted to reflect the Department’s
balance as reported by Treasury. The difference between FBWT in the Department’s general ledgers and
FBWT reflected in the Treasury accounts is attributable to transactions that have not been posted to the
individual detailed accounts in the DoD Components’ general ledgers as a result of timing differences or
the inability to obtain valid accounting information prior to the issuance of the financial statements. When
research is completed, these transactions will be recorded in the appropriate individual detailed accounts in
the DoD Components’ general ledger accounts.

Financial Section
Note 4. Cash and Other Monetary Assets

Table 4. Cash and Other Monetary Assets

($ in millions)
Cash $ 428.2 $ 444.2

Foreign Currency 490.1 523.8
Total Cash and Other Monetary Assets $ 918.3 $ 968.0
The majority of cash and all foreign currency is classified as non-entity and is restricted. Amounts
reported consist primarily of cash and foreign currency held by disbursing officers to carry out their paying,
collecting, and foreign currency accommodation exchange missions. These amounts are held outside of
Treasury, in local deposit accounts, or cash, under the custodial responsibility of the disbursing officer and
are not directly associated with an appropriation. An offsetting liability to Treasury is reported on Note 15,
Other Liabilities.
In FY 2019 and FY 2018, cash includes unrestricted entity assets of $90.1 million and
$108.9 million, respectively, comprised of undeposited collections and other cash.

Financial Section
Note 5. Investments and Related Interest

Table 5. Investments and Related Interest
As of September 30 2019
($ in millions)
Amortized
Amortization Investments, M arket Value
Cost (Premium) /
M ethod Net Disclosure
Discount
Intragovernmental S ecurities
Non-M arketable, M arket-Based
M ilitary Retirement Fund $ 928,306.9 Eff. Int. $ (37,141.7) $ 891,165.2 $ 997,841.3
M edicare Eligible Retiree 292,451.8 (16,436.8) 276,015.0 318,751.7
Health Care Fund Eff. Int.
U.S. Army Corps of Engineers 9,375.6 Eff. Int. 41.9 9,417.5 9,444.7
Other Funds 2,973.8 Eff. Int. (43.1) 2,930.7 2,971.4
Total Non-M arketable, M arket-Based 1,233,108.1 (53,579.7) 1,179,528.4 1,329,009.1
Accrued Interest 8,080.6 Eff. Int. N/A 8,080.6 8,080.6
Total Intragovernmental S ecurities 1,241,188.7 (53,579.7) 1,187,609.0 1,337,089.7
Other Investments $ 3,511.6 $ - $ 3,511.6 N/A
Legend for Amortization Methods: Eff. Int. = Effective Interest Method
($ in millions)
Amortized
Amortization Investments, M arket Value
Cost (Premium) /
M ethod Net Disclosure
Discount
Intragovernmental S ecurities
Non-M arketable, M arket-Based
M ilitary Retirement Fund $ 842,584.2 Eff. Int. $ (34,499.7) $ 808,084.5 $ 831,172.6
M edicare Eligible Retiree
Health Care Fund 278,981.1 Eff. Int. (15,090.3) 263,890.8 284,354.3
U.S. Army Corps of Engineers 9,364.2 Eff. Int. (37.5) 9,326.7 9,294.2
Other Funds 2,663.4 Eff. Int. (78.2) 2,585.2 2,564.7
Total Non-M arketable, M arket-Based 1,133,592.9 (49,705.7) 1,083,887.2 1,127,385.8
Accrued Interest 7,877.2 Eff. Int. N/A 7,877.2 7,877.2
Total Intragovernmental S ecurities 1,141,470.1 (49,705.7) 1,091,764.4 1,135,263.0
Other Investments $ 3,511.6 $ - $ 3,511.6 N/A
Legend for Amortization Methods: Eff. Int. = Effective Interest Method
The Department invests primarily in non-marketable, market-based Treasury securities. The value
of these securities fluctuates in tandem with the selling price of the equivalent marketable security.
Securities are purchased with the intent to hold until maturity; thus, balances are not adjusted to market
value.
The Treasury securities are issued to authorized funds and are an asset to the Department and a
liability to the Treasury. The Federal Government does not set aside assets to pay future benefits or other
expenditures associated with these funds. Cash generated (e.g., from bond dividends, proceeds from bond
sales, and proceeds from sureties reaching maturity) is deposited in the Treasury and used for general
Government purposes. Since the Department and the Treasury are both part of the Federal Government,
these assets and liabilities offset each other from the standpoint of the Federal Government as a whole. For
this reason, they do not represent an asset or a liability in the U.S. Government-wide financial statements.

Financial Section
The Treasury securities provide the Department with authority to access funds to make future
benefit payments or other expenditures. When the Department requires redemption of securities to make
expenditures, the Federal Government will meet the requirement by using accumulated cash balances,
raising taxes or other receipts, borrowing from the public or repaying less debt, or curtailing other
expenditures. The Federal Government uses the same method to finance all of its other expenditures.
The U.S. Army Corps of Engineers balance in Intragovernmental Securities consists primarily of
$9.3 billion and $9.1 billion in Harbor Maintenance and Related Funds for FY 2019 and FY 2018,
respectively.
In FY 2019, Other Funds consists primarily of $1.6 billion in investments of the Support for U.S.
Relocation to Guam Activities Trust Fund and $1.1 billion in investments of the DoD Education Benefits
Trust Fund. In FY 2018, Other Funds consists primarily of $1.3 billion in investments of the Support for
U.S. Relocation to Guam Activities Trust Fund and $1.1 billion in investments of the DoD Education
Benefits Trust Fund.
Other Investments consists of Military Housing Privatization Initiative (MHPI) limited
partnerships. A limited partnership arrangement operates purely as a private business and does not require
Market Value Disclosure. The Department invests in non-governmental entities involved in the acquisition
or construction of family housing and supporting facilities at Army, Air Force, Navy, and Marine Corps
installations. The Department provides cash, land, or facilities as equity, but has no role in the day-to-day
operations and management of the limited partnership. Total Other Investments is currently reporting cash
investments only. See Note 25, Public-Private Partnerships for additional information on cash and non-
cash contributions to the MHPI limited partnerships.

Financial Section
Note 6. Accounts Receivable, Net

Table 6. Accounts Receivable
($ in millions) Allowance for
Gross Amount Accounts
Estimated
Due Receivable, Net
Uncollectibles
Intragovernmental
Receivables $ 2,025.2 N/A $ 2,025.2
Non-Federal Receivables
(From the Public) 6,677.8 (783.3) 5,894.5
Total Accounts Receivable $ 8,703.0 $ (783.3) $ 7,919.7
($ in millions) Allowance for
Gross Amount Accounts
Estimated
Due Receivable, Net
Uncollectibles
Intragovernmental
Receivables $ 1,951.6 N/A $ 1,951.6
Non-Federal Receivables
(From the Public) 6,474.0 (779.9) 5,694.1
Total Accounts Receivable $ 8,425.6 $ (779.9) $ 7,645.7
Accounts receivable represent the Department’s claim for payment from other entities. Claims
with other federal agencies are resolved in accordance with the business rules published in Appendix 10 of
Treasury Financial Manual, Volume I, Part 2, Chapter 4700. The Department only recognizes an
allowance for uncollectible amounts from the public. Allowances for uncollectible accounts are based on
an estimation methodology using three years of historical collection data and is calculated on consolidated
receivable balances. Additionally, the Department has fuel exchange agreements with foreign countries.
These agreements allow the Department to periodically offset the accounts receivable by the amount the
Department owes to the same foreign country.
The gross amount due for Non-Federal Receivables (From the Public) for FY 2019 includes
criminal restitution orders of $1.1 billion monitored by the Department, of which $0.5 billion is determined
to be collectible. Restitution receivables and associated payments are pursued by the courts handling those
cases. The Department establishes the receivables based on the court documents received and posts
payments received through the courts. At two years delinquent, criminal restitution receivables are
considered 100 percent uncollectible; however, the Department is only authorized to write off or close
accounts with approval from the Department of Justice.

Financial Section
Note 7. Direct Loan and Loan Guarantees, Non-Federal Borrowers

Military Housing Privatization Initiative
The Department operates loan guarantee programs for MHPI. The MHPI includes both direct loan
and loan guarantee programs. The programs are authorized by the NDAA for FY 1996, which includes a
series of authorities allowing the Department to work with the private sector to renovate and build military
family housing, and the NDAA for FY 2005, which provides the permanent authority. The MHPI
accelerates the construction of new housing built to market standards and obtains private sector capital to
leverage government funds. The Department provides protection to private sector partners against specific
risks, such as base closure or member deployment.
The Federal Credit Reform Act of 1990 governs all new and amended direct loan obligations and
loan guarantee commitments made after FY 1991.
Table 7A. Summary of Direct Loans and Loan Guarantees

($ in millions)
Direct Loans:
M ilitary Housing Privatization Initiative $ 1,738.7 $ 1,697.4
Total Direct Loans $ 1,738.7 $ 1,697.4
Total Default Loan Guarantees $ - $ -
Total Loans Receivable $ 1,738.7 $ 1,697.4

($ in millions)
Loan Guarantee Liability:

M ilitary Housing Privatization Initiative $ 50.7 $ 58.4
Total Loan Guarantee Liability $ 50.7 $ 58.4
Loans Receivable
Direct loans are reported at the net present value (NPV) of the following projected cash flows:
• Loan disbursements;
• Repayments of principal; and
• Payments of interest and other payments over the life of the loan after adjusting for estimated
defaults, prepayments, fees, penalties, and other recoveries.

Financial Section
Table 7B. Direct Loans Obligated After FY 1991

As of Sep tember 30 2019 2018
($ in millions)
M ilitary Housing Privatization Initiative

Loans Receivable Gross $ 1,780.9 $ 1,759.6
Allowance for Subsidy Cost (Present Value) (42.2) (62.2)
Value of Assets Related to Direct Loans, Net $ 1,738.7 $ 1,697.4
Total Loans Receivable $ 1,738.7 $ 1,697.4
Total Loans Receivable does not represent proceeds the Department would expect to receive from
selling the loans. Interest is calculated using the interest earned method.
Table 7C. Total Amount of Direct Loans Disbursed
As of Sep tember 30 2019 2018
($ in millions)
Table 7D. Subsidy Expense for Direct Loan by Program
Table 7D.1. Subsidy Expense for New Direct Loans Disbursed
($ in millions) Fees and
Interest
Defaults Other Other Total
Differential
Collections
M ilitary Housing Privatization Initiative $ 3.7 $ 5.6 $ - $ - $ 9.3
Interest
Differential
Collections
M ilitary Housing Privatization Initiative $ 8.8 $ 9.0 $ - $ - $ 17.8
Table 7D.2. Direct Loan Modifications and Reestimates
($ in millions)
Total Interest Rate Technical Total
M odifications Reestimates Reestimates Reestimates
M ilitary Housing Privatization Initiative $ - $ (5.6) $ (19.3) $ (24.9)
($ in millions)

Financial Section
Table 7D.3. Total Direct Loan Subsidy Expense

($ in millions)
M ilitary Housing Privatization Initiative $ (15.6) $ 5.4
Table 7E. Budget Subsidy Rates for Direct Loans for the Current Year
Fees and
Interest
Differential
Collections
M ilitary Housing Privatization Initiative 0% 0% 0% 0% 0%
Subsidy rates pertain to loan agreements contracted during the current fiscal year. There were no
new loan agreements in FY 2019 and FY 2018; disbursements and expenses relate to agreements existing
at the beginning of the respective fiscal years.
The rates in Table 7E cannot be applied to direct loans disbursed during the current reporting year
to yield the subsidy expense. Subsidy expense for new loans disbursed in the current year results from
disbursements of loans from current year (when applicable) and prior year loan guarantees. Subsidy
expense reported in the current year also includes re-estimates.
Table 7F. Schedule for Reconciling Subsidy Cost Allowance Balances for Post FY 1991 Direct Loans
For the years ended September 30 2019 2018

($ in millions)
Beginning Balance of the Subsidy Cost Allowance $ 62.2 $ 60.4

Add: Subsidy Expense for Direct Loans Disbursed
During the Reporting Years by Component:
Interest Rate Differential Costs 3.7 8.8
Default Costs (Net of Recoveries) 5.6 9.0
Total of the Above Subsidy Expense Components 9.3 17.8
Adjustments:
Subsidy Allowance Amortization (4.1) (3.6)
Other (0.3) -
Ending Balance of the Subsidy Cost Allowance
Before Reestimates 67.1 74.6
Add or Subtract Subsidy Reestimates by Component:
Interest Rate Reestimates (5.6) (5.0)
Technical/Default Reestimates (19.3) (7.4)
Total of the Above Reestimates Components (24.9) (12.4)
Ending Balance of the Subsidy Cost Allowance $ 42.2 $ 62.2
Loan Guarantee Liability

Loan guarantee liabilities are reported at the NPV. The cost of the loan guarantee is the NPV of
the estimated projected cash flows of payments by the Department to cover defaults and delinquencies,
interest subsidies, or other payments offset by payments to the Department including origination and other
fees, penalties, and recoveries.

Financial Section
Table 7G. Defaulted Guaranteed Loans
There were no defaulted loan guarantees in FY 2019 or FY 2018.

Table 7H. Guaranteed Loans Outstanding
Table 7H.1. Guaranteed Loans Outstanding

($ in millions) Amount of Amount of
Outstanding Outstanding
Principal, Principal,
Principal Principal
Face Value Face Value
Guaranteed Guaranteed
M ilitary Housing Privatization Initiative $ 960.4 $ 960.4 $ 1,008.8 $ 1,008.8
Table 7H.2. New Guaranteed Loans Disbursed

($ in millions) Amount of Amount of
Principal, Principal,
Principal Principal
Face Value Face Value
Guaranteed Guaranteed
M ilitary Housing Privatization Initiative $ - $ - $ 52.9 $ 52.9
Table 7I. Liability for Loan Guarantees

($ in millions)

Total Loan Guarantee Liability $ 50.7 $ 58.4

Financial Section
Table 7J. Subsidy Expense Loan Guarantees by Program
Table 7J.1. Subsidy Expense for New Loan Guarantees
Interest
Supplements
Collections
M ilitary Housing Privatization Initiative $ - $ - $ - $ - $ -
Interest
Supplements
Collections
M ilitary Housing Privatization Initiative $ - $ 2.0 $ - $ - $ 2.0
Table 7J.2. Modifications and Reestimates
($ in millions)
($ in millions)
Table 7J.3. Total Loan Guarantee:

($ in millions)
M ilitary Housing Privatization Initiative $ (9.2) $ (8.6)
Table 7K. Budget Subsidy Rates for Loan Guarantees for the Current Year
Fees and
Interest
Supplements
Collections
M ilitary Housing Privatization Initiative 0% 0% 0% 0% 0%
Subsidy rates pertain to loan agreements contracted during the current fiscal year. There were no
new loan agreements in FY 2019 and FY 2018; disbursements and expenses relate to agreements existing
at the beginning of the respective fiscal years.

Financial Section
These rates cannot be applied to loan guarantees disbursed during the current reporting year to yield
the subsidy expense. Subsidy expense reported in the current year also includes re-estimates. The subsidy
expense for new loan guarantees reported in the current year results from both current year (when
applicable) and prior year agreements.
Table 7L. Schedule for Reconciling Loan Guarantee Liability Balances

($ in millions)
Beginning Balance of the Loan Guarantee Liability $ 58.4 $ 65.2

Add: Subsidy Expense for Guaranteed Loans Disbursed
During the Reporting Years by Component:
Default Costs (Net of Recoveries) - 2.0
Adjustments:
Interest Accumulation on the Liability Balance 1.5 1.8
Ending Balance of the Loan Guarantee Liability
Before Reestimates 59.9 69.0
Add or Subtract Subsidy Reestimates by Component:
Interest Rate Reestimates (1.9) (2.1)
Technical/Default Reestimates (7.3) (8.5)
Total of the Above Reestimate Components (9.2) (10.6)
Ending Balance of the Loan Guarantee Liability $ 50.7 $ 58.4
Administrative Expenses
Administrative Expenses are limited to separately identified expenses in support of the direct loan program
and the loan guarantee program.

Financial Section
Note 8. Inventory and Related Property

Table 8A. Inventory and Related Property

($ in millions)
Inventory, Net $ 105,832.5 $ 103,772.5

Operating M aterials & Supplies, Net 184,878.0 171,087.6
Stockpile M ateriel, Net 779.2 818.3
Total Inventory and Related Property, Net $ 291,489.7 $ 275,678.4
Inventory
Table 8B. Inventory Categories
($ in millions) Inventory, Revaluation Inventory, Valuation
Gross Value Allowance Net M ethod
Held for Sale $ 67,274.1 $ (1.0) $ 67,273.1 LAC, M AC

Held in Reserve for Future Sale 1,169.2 - 1,169.2 LAC, M AC
Held for Repair 40,518.8 (5,660.5) 34,858.3 LAC, M AC
Raw M aterial 1,234.1 - 1,234.1 M AC,LAC
Work-in-Process 995.2 - 995.2 M AC
Excess, Obsolete and Unserviceable 804.3 (501.7) 302.6 NRV
Total $ 111,995.7 $ (6,163.2) $ 105,832.5
Legend for Valuation Methods:

LAC = Latest Acquisition Cost, adjusted for holding gains and losses MAC = Moving Average Cost
NRV = Net Realizable Value
($ in millions) Inventory, Revaluation Inventory, Valuation
Gross Value Allowance Net M ethod
Held for Sale $ 66,309.9 $ 62.2 $ 66,372.1 LAC, M AC

Held in Reserve for Future Sale 1,156.1 - 1,156.1 LAC, M AC
Held for Repair 37,668.8 (5,068.9) 32,599.9 LAC, M AC
Raw M aterial 1,171.8 - 1,171.8 M AC,LAC
Work-in-Process 2,106.4 - 2,106.4 M AC
Excess, Obsolete and Unserviceable 809.2 (443.0) 366.2 NRV
Total $ 109,222.2 $ (5,449.7) $ 103,772.5

LAC = Latest Acquisition Cost, adjusted for holding gains and losses MAC = Moving Average Cost
NRV = Net Realizable Value
General Composition of Inventory

Inventory is tangible personal property such as raw materials to be consumed in the production of
goods for sale or in the provision of service for a fee, the value of inventory used in the production process,
finished goods held for sale, and goods held for repair and eventual sale. Inventory includes spare and
repair parts, clothing and textiles, and fuels held for sale. The Department assigns inventory items to a
category based on asset type and condition.

Financial Section
Inventory Restrictions
The following types of inventory are subject to restrictions on use, sale, or disposition:
• Inventories maintained as war reserve materiel in accordance with DoD Instruction 3110.06 with
a recorded value of $2.6 billion in FY 2019 ($2.5 billion in FY 2018), consisting of stocks such as
bulk petroleum, subsistence items, and other goods managed and positioned to reduce reaction time
in response to contingencies and to sustain military forces;
• Defense Commissary Agency inventory with a recorded value of $384.7 million in FY 2019
($386.4 million in FY 2018), consisting of grocery, meat, and produce items, limited for resale to
authorized commissary patrons; and
• Dispositions pending litigation or negotiation (related to issues including inventory condition,
pricing disputes, and product specifications) with a recorded value of $115.5 million in FY 2019
($129.6 million in FY 2018).
There are no known restrictions on inventory disposition related to environmental or other
liabilities.
Operating Materials & Supplies
Table 8C. OM&S Categories
($ in millions) OM &S, Revaluation OM&S ,
Valuation M ethod
Gross Value Allowance Net
Held for Use $ 127,108.6 $ - $ 127,108.6 DM, HC, MAC, RP, SP

Held in Reserve for Future Use 23,486.3 - 23,486.3 DM, HC, MAC, RP, SP
Held for Repair 31,237.3 - 31,237.3 DM, HC, MAC, RP, SP
In Development 3,045.8 - 3,045.8 DM, HC, MAC, RP, SP
Excess, Obsolete and Unserviceable 3,050.0 (3,050.0) - NRV
Total $ 187,928.0 $ (3,050.0) $ 184,878.0

DM = Direct Method HC = Historical Cost MAC = Moving Average Cost
NRV = Net Realizable Value RP = Replacement Price SP = Standard Price
($ in millions) OM &S, Revaluation OM&S ,
Valuation M ethod
Gross Value Allowance Net
Held for Use $ 121,061.8 $ - $ 121,061.8 DM, HC, MAC, RP, SP

Held in Reserve for Future Use 13,562.7 - 13,562.7 DM, HC, MAC, RP, SP
Held for Repair 31,996.8 - 31,996.8 DM, HC, MAC, RP, SP
In Development 4,466.3 - 4,466.3 DM, HC, MAC, RP, SP
Excess, Obsolete and Unserviceable 2,933.4 (2,933.4) - NRV
Total $ 174,021.0 $ (2,933.4) $ 171,087.6

DM = Direct Method HC = Historical Cost MAC = Moving Average Cost
NRV = Net Realizable Value RP = Replacement Price SP = Standard Price

Financial Section
General Composition of OM&S

OM&S include spare and repair parts, ammunition, tactical missiles, aircraft configuration pods,
and centrally managed aircraft engines held for consumption. The Department assigns OM&S items to a
category based on asset type and condition.
During FY 2019, the Department determined the proper classification of Trident missile operations
should be OM&S under SFFAS 3. This decision resulted in an increase of $12.8 billion in Operating
Materials and Supplies Held in Reserve for Future Use.
OM&S Restrictions
Restricted munitions are considered obsolete or unserviceable when they cannot meet performance
requirements based on condition. However, obsolete and unserviceable OM&S may be used in emergency
combat situations when no other suitable munitions are immediately available.
Other Disclosures
The FASAB issued SFFAS 48, permitting alternative methods in establishing opening balances,
effective for periods beginning after September 30, 2016 with early implementation allowed. Some DoD
Components used the deemed cost measures from this standard for FY 2016; additional DoD Components
used the deemed cost measures from the standard in FY 2017 using a combination of standard price (selling
price), latest acquisition cost, estimated historical cost, and actual historical cost as the basis for valuation.
Effective FY 2018, certain assets previously reported under General Equipment Construction-in-
Progress are now reported as OM&S In Development.
Stockpile Materiel
Table 8D. Stockpile Materiel Categories
($ in millions) Stockpile Allowance S tockpile
Valuation
M ateriel for Gains Materiel,
M ethod
Gross Value (Losses) Net
Held for Sale $ 28.5 $ - $ 28.5 AC, LCM

Held in Reserve for Future Sale 750.7 - 750.7 AC, LCM
Total $ 779.2 $ - $ 779.2

AC = Actual Cost LCM = Lower of Cost or Market
($ in millions) Stockpile Allowance S tockpile
Valuation
M ateriel for Gains Materiel,
M ethod
Gross Value (Losses) Net
Held for Sale $ 32.1 $ - $ 32.1 AC, LCM

Held in Reserve for Future Sale 786.2 - 786.2 AC, LCM
Total $ 818.3 $ - $ 818.3

AC = Actual Cost LCM = Lower of Cost or Market

Financial Section
General Composition of Stockpile Materiel

Due to statutory requirements, the Department holds strategic and critical stockpile materiel for use
in national defense, conservation, or national emergencies. The estimated market price of stockpile materiel
as of September 30, 2019, is $1.0 billion ($1.3 billion in FY 2018).
Stockpile Materiel Restrictions
Materiel held by the National Defense Stockpile is restricted unless released by congressional
action and made available for sale on the open market. Stockpile materiel may not be disposed except for
(1) necessary upgrading, refining, or processing; (2) necessary rotation to prevent deterioration;
(3) determination as excess with potential financial loss if retained; or (4) authorization by law.
Before selling any materiel, Congress must enact specific enabling legislation (e.g., the National
Defense Authorization Act). When authorized to offer materiel for sale, the National Defense Stockpile
reclassifies the materiel from Held in Reserve to Held for Sale.

Financial Section
Note 9. General PP&E, Net

Table 9A. Major General PP&E Asset Classes
($ in millions) Depreciation / (Accumulated
Acquisition Net Book
Amortization Service Life Depreciation /
Value Value
M ethod Amortization)
Land N/A N/A $ 9,094.2 N/A $ 9,094.2

Buildings, Structures, and Facilities S/L 35, 40, or 45 * 465,456.4 (292,894.7) 172,561.7
Leasehold Improvements S/L Lease Term 546.3 (318.0) 228.3
Software S/L 2 - 5 or 10 9,909.1 (4,868.3) 5,040.8
General Equipment S/L Various 1,154,130.0 (681,256.4) 472,873.6
Assets Under Capital Lease S/L Lease Term 366.2 (283.8) 82.4
Construction in Progress N/A N/A 108,179.7 N/A 108,179.7
Other N/A N/A 10,541.5 (10,043.8) 497.7
Total General PP&E $ 1,758,223.4 $ (989,665.0) $ 768,558.4
* Estimated useful service life is 35 years for structures, 40 years for linear structures, and 45 years for buildings
Legend for Depreciation/Amortization Methods: S/L = Straight Line Method
($ in millions) Depreciation / (Accumulated
Acquisition Net Book
Amortization Service Life Depreciation /
Value Value
M ethod Amortization)
Land N/A N/A $ 9,076.7 N/A $ 9,076.7

Buildings, Structures, and Facilities S/L 35, 40, or 45 * 432,389.3 (265,377.3) 167,012.0
Leasehold Improvements S/L Lease Term 551.2 (292.6) 258.6
Software S/L 2 - 5 or 10 9,940.2 (5,053.2) 4,887.0
General Equipment S/L Various 1,134,083.5 (660,634.5) 473,449.0
Assets Under Capital Lease S/L Lease Term 353.7 (257.5) 96.2
Construction in Progress N/A N/A 103,695.4 N/A 103,695.4
Other N/A N/A 12,477.3 (12,123.1) 354.2
Total General PP&E $ 1,702,567.3 $ (943,738.2) $ 758,829.1
* Estimated useful service life is 35 years for structures, 40 years for linear structures, and 45 years for buildings
Legend for Depreciation/Amortization Methods: S/L = Straight Line Method
The Department’s General PP&E consists primarily of buildings and structures, furniture and
fixtures, equipment, vehicles, internal use software, and land.
Other Disclosures
The Department has use of overseas land, buildings, and other facilities obtained through
international treaties and agreements negotiated by the Department of State. Treaty covenants restrict the
Department’s use and disposal of real property (land and buildings) located outside the United States.
The Department uses several cost methodologies to provide General PP&E values for financial
statement reporting purposes. The FASAB issued SFFAS 50, permitting alternative methods in establishing
opening balances for General PP&E, effective for periods beginning after September 30, 2016. Some DoD
Components used the alternative valuation methods from this standard based on historical records such as
expenditure data, contracts, budget information, and engineering documentation. Land and land rights
recognized in the prior year for certain DoD Components are excluded from General PP&E opening

Financial Section
balances in FY 2018, as permitted under SFFAS 50. The total acreage of land and land rights excluded in
this manner was 20,926,485 in FY 2018. There are no new land or land rights excluded for FY 2019.
Other General PP&E includes Real Property held in Caretaker Status. Caretaker Status is defined
as property under the legal jurisdiction of the Department, such as Base Realignment and Closure assets,
awaiting further disposition, sale, or transfer to another entity.
Heritage Assets and Stewardship Land
SFFAS 29 provides guidance on accounting and note disclosures for Heritage Assets and
Stewardship Land. The Department’s policy is to preserve its heritage assets, which are items of historical,
cultural, educational, or artistic importance.
As the Department’s mission to provide the military forces needed to deter war and protect the
security of our country has been executed, the Department has become a large scale owner of historic
buildings, structures, historical artifacts, art, stewardship land, and other cultural resources. Protection of
these elements of the nation’s heritage assets and stewardship land is an essential part of the Department’s
mission.
The Department, with minor exceptions, uses the buildings and stewardship land in its daily
activities and includes the buildings on the Balance Sheet as multi-use heritage assets.
Heritage assets receive such designation, and have such designation withdrawn, through the
accessioning and deaccessioning procedures for collections or through evaluation in compliance with the
National Historic Preservation Act. Designation is in accordance with the standards articulated with the
collection scopes and collecting plans, or by application of the criteria of the National Register of Historic
Places.
Heritage assets within the Department consist of buildings and structures, archeological sites, and
museum collections. The Department defines these as follows in accordance with the National Historic
Preservation Act:
• Buildings and Structures listed, or eligible for listing, on the National Register of Historic Places,
including multi-use heritage assets;
• Archeological Sites listed, or eligible for listing, on the National Register of Historic Places; and
• Museum Collection Items considered unique due to historical, natural, cultural, educational,
artistic, technical, or architectural significance.
The Department continues to progress towards identifying heritage assets and stewardship land
added through donation or devise (e.g., a clause in a will leaving real estate to the Department). Differences
in heritage asset quantities between the FY 2018 ending unit counts and the FY 2019 beginning unit counts
resulted from periodic reviews.

Financial Section
Table 9B. Heritage Assets
For the year ended September 30, 2019

Beginning
(physical unit count) Additions (Deletions) Ending Balance
Balance
Categories:
Buildings and Structures 43,737 1,196 (2,785) 42,148
Archeological Sites 13,283 1,917 (4,532) 10,668
M useum Collection Items (Objects, 1,301,801 7,114 (8,023) 1,300,892
Not Including Fine Art)
M useum Collection Items (Objects, 59,598 488 (8) 60,078
Fine Art)
Stewardship land represents land and land rights owned by the Department, but not acquired for,
or in connection with items of General PP&E. All land provided to the Department from the public domain
at no cost, regardless of its use, is classified as Stewardship Land.
The Department uses Stewardship Land for military bases, installations, training ranges, or other
military mission related functions.
Stewardship land is categorized and reported in acres based on the predominant use of the land.
Table 9C. Stewardship Land
For the year ended September 30, 2019
(acres in thousands)
Facility Beginning Ending

Facility Title Additions (Deletions)
Code Balance Balance
9110 Government Owned Land 1,572 75 - 1,647
9111 State Owned Land - - - -
9120 Withdrawn Public Land 8,263 2 (73) 8,192
9130 Licensed and Permitted Land 750 - (4) 746
9140 Public Land 1 4 - 5
9210 Land Easement 157 - - 157
9220 In-Leased Land 101 - - 101
9230 Foreign Land 297 - - 297
Grand Total 11,141 81 (77) 11,145
Total All Other Lands 1,301
Total Stewardship Lands 9,844
The four categories of Stewardship land– Government Owned Land; State Owned Land;
Withdrawn Public Land (not available for settlement, sale, location, or entry); and Public Land (held by
local governments) – are held in public trust.
The Department’s methods of acquisition and withdrawal of stewardship land are as follows:
• Acquiring additional land through donation or withdrawals from public domain,

• Identifying missing land records,
• Disposing of Base Realignment and Closure (BRAC) sites or transferring land to another DoD
Component,
• Identifying cemeteries and historical facilities,
• Disposing of BRAC property or excess installations, and
• Privatizing residential community initiatives programs.

Financial Section
Note 10. Other Assets

Table 10. Other Assets

($ in millions)
Intragovernmental Other Assets

Advances and Prepayments $ 983.1 $ 838.1
Other Assets 123.4 123.4
Total Intragovernmental Other Assets 1,106.5 961.5
Non-Federal Other Assets

Outstanding Contract Financing Payments 18,241.1 26,016.6
Advances and Prepayments 1,107.6 2,316.3
Other Assets (With the Public) 194.4 41.5
Total Non-Federal Other Assets 19,543.1 28,374.4
Total Other Assets $ 20,649.6 $ 29,335.9
Intragovernmental Other Assets

Advances and Prepayments are amounts advanced or prepaid to other federal agencies.
Other Assets are largely related to the Department’s right to approximately 6.4 million barrels of
crude oil (net book value of $123.3 million in FY 2019 and FY 2018), held by the Department of Energy.
In accordance with the Department of Defense Appropriations Act of 1993, these assets are maintained as
a Strategic Petroleum Reserve for national defense purposes.
Non-Federal Other Assets
Outstanding Contract Financing Payments, a separate classification of advances and prepayments,
includes $18.2 billion in FY 2019 in contract financing payments made in contemplation of the future
performance of services, receipt of goods, incurrence of expenditures or receipt of other assets. During
FY 2019, the Department began reporting $6.0 billion as expenses or property, plant and equipment for the
estimated costs incurred by a contractor per FAR 52.232-16, related to the FY 2019 contract holdbacks. In
comparison, FY 2018 Outstanding Contract Financing Payments included $21.7 billion in contract
financing payments and an additional $4.3 billion in payments of estimated future amounts due to
contractors upon delivery and government acceptance. This additional Contract Financing Payment asset
is related to the FY 2018 Contingent Liabilities reported in Note 15, Other Liabilities.
Advances and Prepayments are made in contemplation of the future performance of services,
receipt of goods, incurrence of expenditures, or receipt of other assets, excluding those made as Outstanding
Contract Financing Payments.
In FY 2019, Other Assets (With the Public) consisted primarily of inventory returns pending credit
from vendors. In FY 2018, Other Assets (With the Public) consisted of General PP&E permanently
removed but awaiting disposal.

Financial Section
Note 11. Liabilities Not Covered by Budgetary Resources

Table 11. Liabilities Not Covered by Budgetary Resources
Restated
($ in millions)
Intragovernmental Liabilities
Accounts Payable $ 40.1 $ -
Debt 0.3 0.6
Other 1,913.3 1,762.8
Total Intragovernmental Liabilities 1,953.7 1,763.4
Non-Federal Liabilities
Accounts Payable 2,318.2 1,467.7
M ilitary Retirement and Other Federal Employee 1,525,256.1 1,440,808.5
Benefits
Environmental and Disposal Liabilities 73,097.0 67,100.1
Other Liabilities 14,227.1 13,454.8
Total Non-Federal Liabilities 1,614,898.4 1,522,831.1
Total Liabilities Not Covered by Budgetary Resources 1,616,852.1 1,524,594.5

Total Liabilities Covered by Budgetary Resources 1,143,171.4 1,039,466.2
Total Liabilities Not Requiring Budgetary Resources - -
Total Liabilities $ 2,760,023.5 $ 2,564,060.7
Restatement
The Department corrected a $57.1 million overstatement of Total Liabilities Covered by Budgetary
Resources. See Note 28, Restatements, for further information.
Intragovernmental Liabilities
Debt consists primarily of borrowing from the Treasury for capital improvements to the
Washington Aqueduct Project expected to be completed by 2023. The related reimbursement to the
Department from Arlington County, Virginia and Falls Church, Virginia, is recorded as Non-Federal
Accounts Receivable.
Other Liabilities consists primarily of unfunded liabilities for Federal Employees Compensation
Act, Judgment Fund, and Unemployment Insurance.
Non-Federal Liabilities
Accounts Payable primarily represents liabilities in canceled appropriations, which if paid, will be
disbursed using current year funds.
Military Retirement and Other Federal Employment Benefits consists of various employee
actuarial liabilities not due and payable during the current fiscal year. In FY 2019, these liabilities primarily
consist of $940.8 billion in pension liabilities and $576.9 billion in health benefit liabilities. In FY 2018,
these liabilities primarily consist of $886.0 billion in pension liabilities and $547.4 billion in health benefit
liabilities. Refer to Note 13, Military Retirement and Other Federal Employment Benefits, for additional
details.

Financial Section
Environmental and Disposal Liabilities represents the Department’s liability for existing and
anticipated environmental clean-up and disposal. Refer to Note 14, Environmental and Disposal Liabilities,
for additional details.
Other Liabilities consists primarily of unfunded annual leave, contingent liabilities, and expected
expenditures for disposal of conventional munitions.
Total Liabilities
Budgetary resources include (1) new budget authority, (2) unobligated balances of budgetary
resources at the beginning of the year or net transfers of prior year balances during the year, (3) spending
authority from offsetting collections, and (4) recoveries of unexpired budget authority through downward
adjustments of prior year obligations. Additionally, liabilities are covered by budgetary resources if they
are to be funded by permanent indefinite appropriations, provided that the resources may be apportioned
by OMB without further action by Congress and without contingency having to be met first.
Liabilities Not Covered by Budgetary Resources require congressional action before budgetary
resources can be provided.
Liabilities Not Requiring Budgetary Resources have not in the past and will not in the future require
the use of budgetary resources.

Financial Section
Note 12. Debt

Table 12. Debt
($ in millions) 2018 2018 2018 2019 2019

Beginning Net Ending Net Ending
Balance Borrowing Balance Borrowing Balance
Agency Debt (Intragovernmental)

Debt to Treasury $ 1,630.8 $ 54.9 $ 1,685.7 $ 28.4 $ 1,714.1
Total Debt $ 1,630.8 $ 54.9 $ 1,685.7 $ 28.4 $ 1,714.1
The Department’s debt consists of interest and principal payments due to the Treasury. The
Department borrows funds from the Treasury for the Military Housing Privatization Initiative and the
Washington Aqueduct Capital Improvements Project. See Note 7, Direct Loan and Loan Guarantees, for
more information pertaining to MHPI.

Financial Section
Note 13. Military Retirement and Other Federal Employment Benefits

The Department complies with the requirements of SFFAS 33, which directs that the long-term
interest/discount rate, underlying inflation (cost of living adjustment, or COLA) rate and other economic
assumptions be consistent with one another. A change in the interest/discount rate may cause other
assumptions to change as well. SFFAS 33 also requires the separate presentation of gains and losses from
changes in long-term assumptions used to estimate liabilities associated with pensions, other retirement and
postemployment benefits. SFFAS 33 provides a standard for selecting the discount rate and valuation date
used in estimating these liabilities.
Table 13A. Military Retirement and Other Federal Employment Benefits Liability
($ in millions) (Assets
Unfunded
Liabilities Available to
Liabilities
Pay Benefits)
Pension and Health Benefits

M ilitary Retirement Pensions $ 1,754,187.0 $ (813,431.8) $ 940,755.2
M ilitary Pre M edicare-Eligible Retiree Health Benefits 254,832.8 - 254,832.8
M ilitary M edicare-Eligible Retiree Health Benefits 573,219.1 (251,137.6) 322,081.5
Total Pension and Health Benefits 2,582,238.9 (1,064,569.4) 1,517,669.5
Other Benefits
FECA 5,786.9 - 5,786.9
Voluntary Separation Incentive Programs 219.5 (93.5) 126.0
DoD Education Benefits Fund 786.7 (786.7) -
Other 7,339.8 (5,666.1) 1,673.7
Total Other Benefits 14,132.9 (6,546.3) 7,586.6
Total Military Retirement and Other Federal

Employment Benefits $ 2,596,371.8 $(1,071,115.7) $ 1,525,256.1
Actuarial Cost Method Used for Pension and Health Benefits: Aggregate Entry-Age Normal Method
Market Value of Investments in Non-Marketable, Market Based Securities
included in Assets Available to Pay Benefits: $1.3 trillion

Financial Section
Table 13A. Military Retirement and Other Federal Employment Benefits Liability
($ in millions) (Assets
Unfunded
Liabilities Available to
Liabilities
Pay Benefits)

M ilitary Retirement Pensions $ 1,616,398.1 $ (730,405.6) $ 885,992.5
M ilitary Pre M edicare-Eligible Retiree Health Benefits 249,694.0 - 249,694.0
M ilitary M edicare-Eligible Retiree Health Benefits 535,318.1 (237,646.7) 297,671.4
Total Pension and Health Benefits 2,401,410.2 (968,052.3) 1,433,357.9
Other Benefits
FECA 5,858.0 - 5,858.0
Voluntary Separation Incentive Programs 270.9 (108.6) 162.3
DoD Education Benefits Fund 921.7 (921.7) -
Other 6,886.0 (5,455.7) 1,430.3
Total Other Benefits 13,936.6 (6,486.0) 7,450.6
Total Military Retirement and Other Federal

Employment Benefits $ 2,415,346.8 $ (974,538.3) $ 1,440,808.5
Actuarial Cost Method Used for Pension and Health Benefits: Aggregate Entry-Age Normal Method
Market Value of Investments in Non-Marketable, Market Based Securities
included in Assets Available to Pay Benefits: $1.1 trillion
Table 13B. Reconciliation of Beginning and Ending Liability Balances for Military Retirement and Other
Federal Employment Benefits
For the year ended September 30 2019
($ in millions)
M ilitary Pre M ilitary Voluntary
M ilitary
M edicare M edicare Separation DoD Education
Retirement
Eligible Retiree Eligible Retiree Incentive Benefits Fund
Pensions
Health Benefits Health Benefits Programs
Beginning Actuarial Liability $ 1,616,398.1 $ 249,694.0 $ 535,318.1 $ 270.9 $ 921.7

Expense:
Normal Cost 32,110.3 10,357.8 10,936.5 - 131.4
Interest on the Liability Balance 56,083.8 9,166.8 19,473.2 4.6 29.1
Plan Amendments - - - - -
Experience Losses (Gains) 1,091.7 (6,049.4) (9,261.9) (2.2) 85.2
Other Factors - - - - -
Expenses Before Losses (Gains) from
Actuarial Assumption Changes 89,285.8 13,475.2 21,147.8 2.4 245.7
Actuarial Losses (Gains) due to:

Changes in Trend Assumptions - (232.0) 14,926.6 - -
Changes in Assumptions Other
Than Trend 108,863.6 2,826.7 12,587.3 0.5 (164.2)
Losses (Gains) from Actuarial
Assumption Changes 108,863.6 2,594.7 27,513.9 0.5 (164.2)
Total Expenses 198,149.4 16,069.9 48,661.7 2.9 81.5

Less: Benefit Outlays 60,360.5 10,931.1 10,760.7 54.3 216.5
Total Changes in Actuarial Liability 137,788.9 5,138.8 37,901.0 (51.4) (135.0)
Ending Actuarial Liability $ 1,754,187.0 $ 254,832.8 $ 573,219.1 $ 219.5 $ 786.7

Financial Section
Table 13B. Reconciliation of Beginning and Ending Liability Balances for Military Retirement and Other
Federal Employment Benefits
($ in millions)
M ilitary Pre M ilitary Voluntary
M ilitary
M edicare M edicare Separation DoD Education
Retirement
Eligible Retiree Eligible Retiree Incentive Benefits Fund
Pensions
Health Benefits Health Benefits Programs
Beginning Actuarial Liability $ 1,567,689.2 $ 252,512.9 $ 526,986.1 $ 321.5 $ 998.7

Plus Expenses:
Normal Cost 29,673.5 10,135.7 10,498.3 - 138.8
Interest Cost 57,466.1 9,772.8 20,223.9 6.1 33.6
Plan Amendments 8,932.0 (2,678.3) (18,195.0) - -
Experience Losses (Gains) 9,610.0 (8,729.9) (8,492.0) 3.0 6.9
Other Factors - - - - -
Expenses Before Losses (Gains) from
Actuarial Assumption Changes 105,681.6 8,500.3 4,035.2 9.1 179.3
Actuarial Losses (Gains) due to:

Changes in Trend Assumptions - (3,805.0) (6,598.1) - -
Changes in Assumptions Other
Than Trend 2,069.7 3,525.9 21,547.6 1.9 (7.0)
Losses (Gains) from Actuarial
Assumption Changes 2,069.7 (279.1) 14,949.5 1.9 (7.0)
Total Expenses 107,751.3 8,221.2 18,984.7 11.0 172.3

Less: Benefit Outlays 59,042.4 11,040.1 10,652.7 61.6 249.3
Total Changes in Actuarial Liability 48,708.9 (2,818.9) 8,332.0 (50.6) (77.0)
Ending Actuarial Liability $ 1,616,398.1 $ 249,694.0 $ 535,318.1 $ 270.9 $ 921.7

Military Retirement Pensions
The Military Retirement Fund is a defined benefit plan authorized by the NDAA for FY 1984 to
provide funds used to pay annuities and pensions to retired military personnel and their survivors. The
DoD Board of Actuaries approves the methods and non-economic assumptions for use in the valuation of
benefits. Long-term economic assumptions for inflation, salary, and interest are set per SFFAS 33
guidance. The DoD Office of the Actuary (OACT) calculates the actuarial liabilities annually using
economic assumptions and actual experience (e.g., mortality and retirement rates). The Blended Retirement
System (BRS) is a new retirement benefit merging aspects of both a defined benefit annuity with a defined
contribution account, through the Thrift Savings Plan (TSP). Military personnel with a start date on or after
January 1, 2018 are automatically enrolled in BRS. Although all members serving as of
December 31, 2017 are grandfathered under the existing retirement system, Active Duty, National Guard,
and Reserve personnel meeting established criteria were able to opt into BRS during calendar year 2018.
Retiring members are given the option to receive a portion of their retired pay annuity in the form of a lump
sum distribution.
OACT used the assumptions listed in Table 13C to calculate the FY 2019 actuarial liability.

Financial Section
Table 13C. Actuarial Assumptions for Military Retirement Pension Liability

Inflation
Projection Year Salary Interest
(COLA)
FY 2019 2.8% (actual) 2.6% (actual) 3.4%
FY 2020 1.8% (estimated) 3.1% (estimated) 3.4%
Long Term 1.8% 1.8% 3.4%
Actuarial Cost Method Used: Aggregate Entry-Age Normal Method

Market Value of Investments in Market-Based and Marketable Securities: $997.8 billion
Assumed Interest Rate: 3.4%
Historically, the initial unfunded liability of the program was amortized over a 50-year period.
Effective FY 2008, the initial unfunded liability is amortized over a 42-year period to ensure annual
payments cover interest on the unfunded actuarial liability, with the last payment expected October 1, 2025.
All subsequent gains and losses experienced by the system are amortized over a 30-year period.
Military Retirement Health Benefits (MRHB)
The MRHB are post-retirement benefits the Department provides to non-Medicare-eligible military
retirees and other eligible beneficiaries through private sector health care providers and the Department’s
medical treatment facilities. OACT calculates actuarial liabilities annually using assumptions and actual
experience.
For the FY 2019 actuarial liability calculation, OACT used the assumptions listed in Table 13D.
Table 13D. Actuarial Assumptions for MRHB Liability
M RHB M edical Trend FY 2018 - FY 2019 Ultimate Rate FY 2043
Non-M edicare Inpatient (Direct Care) 4.00% 4.05%

Non-M edicare Outpatient (Direct Care) 5.50% 4.05%
Non-M edicare Prescriptions (Direct Care) 6.00% 4.05%
Non-M edicare Inpatient (Purchased Care) 2.50% 4.05%
Non-M edicare Outpatient (Purchased Care) 3.25% 4.05%
Non-M edicare Prescriptions (Purchased Care) 5.69% 4.05%
U.S. Family Health Plan (USFHP) (Purchased Care) 3.97% 4.05%

For the FY 2019 financial statement valuation, a single equivalent medical cost trend rate of 4.25%
can be used to reproduce the total retiree health benefits liability which includes MRHB and Medicare-
Eligible Retiree Health Care Fund liabilities.
Medicare-Eligible Retiree Health Care Fund (MERHCF) Benefits
In accordance with NDAA for FY 2001, MERHCF accumulates funds to finance the health care
program liabilities of Medicare-eligible retirees for all the Uniformed Services and specific Medicare-
eligible beneficiaries. The DoD Medicare-Eligible Retiree Health Care Board of Actuaries approves
assumptions and methods used in actuarial valuations of the MERHCF to calculate normal cost
contributions. OACT calculates the actuarial liabilities annually using assumptions and actual experience
per SFFAS 33 guidance.
OACT used the assumptions listed in Table 13E to calculate the FY 2019 actuarial liability.

Financial Section
Table 13E. Actuarial Assumptions for MERHCF Liability
M ERHCF Benefits M edical Trend FY 2018 - FY 2019 Ultimate Rate FY 2043
M edicare Inpatient (Direct Care) 2.50% 4.05%

M edicare Outpatient (Direct Care) 4.00% 4.05%
M edicare Prescriptions (Direct Care) 5.68% 4.05%
M edicare Inpatient (Purchased Care) 1.00% 4.05%
M edicare Outpatient (Purchased Care) 4.00% 4.05%
M edicare Prescriptions (Purchased Care) 5.67% 4.05%
U.S. Family Health Plan (USFHP) (Purchased Care) 3.05% 4.05%

Market Value of Investments in Market Based and Marketable Securities $318.8 billion
The FY 2019 MERHCF liability includes Medicare liabilities for all Uniformed Services. The
$573.2 billion liability includes $559.4 billion for the Department, $12.3 billion for the Coast Guard,
$1.4 billion for the Public Health Service, and $0.1 billion for the National Oceanic and Atmospheric
Administration (NOAA). The FY 2018 $535.3 billion liability included $522.5 billion for the Department,
$11.4 billion for the Coast Guard, $1.3 billion for the Public Health Service, and $0.1 billion for NOAA.
The FY 2019 normal cost contributions from each of the Uniformed Services were $7.5 billion
from the Department, $199.4 million from the Coast Guard, $28.9 million from the Public Health Service,
and $1.4 million from NOAA. The FY 2018 contributions from each of the Uniformed Services were
$8.1 billion from the Department, $204.1 million from the Coast Guard, $32.0 million from the Public
Health Service, and $1.6 million from NOAA.
For the FY 2019 financial statement valuation, a single equivalent medical cost trend rate of 4.25%
was used to reproduce the total retiree health benefits liability which includes MRHB and MERHCF
liabilities.
Federal Employees’ Compensation Act (FECA)
The Department of Labor (DOL) annually determines the liability for future workers’
compensation benefits including the expected liability for death, disability, medical, and miscellaneous
costs for approved compensation cases, plus a component for incurred-but-not-reported claims. The
liability is determined using historical benefit payment patterns related to a specific incurred period to
predict the final payment related to that period. Consistent with past practice, these projected annual benefit
payments have been discounted to present value based on interest rate assumptions on the Treasury’s Yield
Curve for Treasury Nominal Coupon Issues (TNC Yield Curve) to reflect the average duration of income
payments and medical payments. An interest rate for wage benefits of 2.72% was assumed for year one
and years thereafter. An interest rate for medical benefits of 2.38% was assumed for year one and years
thereafter.
The DOL calculates this liability using wage inflation factors (cost of living adjustments or
COLAs) and medical inflation factors (consumer price index medical or CPIM). The actual rates for these
factors for charge back year (CBY) 2019 were also used to adjust the methodology’s historical payments
to current year constant dollars. The compensation COLAs and CPIMs used in the projections for various
charge back years are provided in Table 13F.

Financial Section
Table 13F. Actuarial Assumptions for FECA Liability
CBY COLA CPIM
2020 1.47% 2.86%

2021 1.85% 3.05%
2022 2.12% 3.09%
2023 2.17% 3.47%
2024+ 2.21% 3.88%
To test the reliability of the model discussed, DOL made comparisons between projected payments
in the last year to actual amounts, by agency. Changes in the liability from last year’s analysis to this year’s
analysis were also examined by agency, with any significant differences by agency inspected in greater
detail. DOL concluded that the model has been stable and has accurately projected the actual payments by
agency.
Voluntary Separation Incentive (VSI) Program
The VSI Program was established by NDAA for FYs 1992 and 1993 to reduce the number of
military personnel on active duty. The DoD Board of Actuaries approved the methods and non-economic
assumptions for use in valuing the benefits. The assumed annual interest rate of 1.8% used to calculate the
actuarial liability was determined in accordance with SFFAS 33 guidance. Since VSI is no longer offered,
the actuarial liability calculated annually is expected to continue to decrease with benefit outlays and
increase with interest cost.
The Market Value of Investments in Market-based and Marketable Securities is $95.7 million for
FY 2019 and $137.8 million for FY 2018.
DoD Education Benefits Fund (EBF)
The EBF was established by NDAA for FY 1985 to recruit and retain military members and aid in
the readjustment of military members to civilian life. The OACT calculates the actuarial liability annually
based on the assumed interest rate of 3.25% as approved by the DoD Board of Actuaries.
The Market Value of Investments in Market-based and Marketable Securities is $1.1 billion for
both FY 2019 and FY 2018.
Other Federal Employment Benefits
Other Federal Employment Benefits primarily consists of an estimated liability for incurred-but-
not-reported medical claims not processed prior to fiscal year-end and accrued pensions and annuities
related to certain life insurance and pension plans.

Financial Section
Note 14. Environmental and Disposal Liabilities

Table 14. Environmental and Disposal Liabilities

($ in millions)
Accrued Environmental Restoration Liabilities

Active Installations - Installation Restoration Program (IRP)
and Building Demolition and Debris Removal (BD/DR) $ 13,915.9 $ 13,621.0
Active Installations - M ilitary M unitions Response 3,498.3 3,476.6
Program (M M RP)
Formerly Used Defense Sites - IRP and BD/DR 2,736.6 2,942.1
Formerly Used Defense Sites - M M RP 7,735.4 7,683.0
Other Accrued Environmental Liabilities - Non-BRAC

Environmental Corrective Action 2,197.7 1,902.3
Environmental Closure Requirements 8,619.8 4,089.8
Environmental Response at Operational Ranges - 92.4
Asbestos 3,763.2 3,972.2
Non-M ilitary Equipment 27.1 24.4
Other 2,064.0 2,078.9
Base Realignment and Closure Installations

IRP 4,880.9 4,381.7
M M RP 778.9 766.0
Environmental Corrective Action/Closure Requirements 334.1 240.7
Asbestos 9.4 10.1
Non-M ilitary Equipment - -
Other - -
Environmental Disposal for M ilitary Equipment/Weapons Program

Nuclear Powered M ilitary Equipment/Spent Nuclear Fuel 17,046.1 16,439.6
Non-Nuclear Powered M ilitary Equipment 767.4 126.1
Other Weapon Systems 377.9 383.7
Chemical Weapons Disposal Program

Chemical Demilitarization - Chemical M aterials Agency 2,442.1 2,576.8
Chemical Demilitarization - Assembled Chemical Weapons
Alternatives (ACWA) 4,930.1 5,604.0
Other - -
Total Environmental and Disposal Liabilities $ 76,124.9 $ 70,411.4
The Department has cleanup requirements for the Defense Environmental Restoration Program
(DERP) for active installations, BRAC installations, and Formerly Used Defense Sites. The Department
has additional cleanup requirements for active installations not covered by DERP, weapon systems
programs, and chemical weapons disposal programs. The weapons systems program consists of chemical
weapons disposal, nuclear powered aircraft carriers, nuclear powered submarines, and other nuclear ships.
All cleanup efforts are performed in coordination with regulatory agencies, other responsible parties, and
current property owners, as applicable.
Other Accrued Environmental Liabilities, Non-BRAC, Other consists primarily of Formerly
Utilized Sites Remedial Action Program (FUSRAP) remediation of radiological contamination. The
FUSRAP is a shared program between the Department and the Department of Energy’s U.S. Atomic Energy
and Weapons Program.

Financial Section
Sources for Cleanup Requirements

The Department is required to clean up contamination from past waste disposal practices, leaks,
spills, and other activity resulting in public health or environmental risk. The Department accomplishes
this effort in coordination with regulatory agencies and, if applicable, other responsible parties and current
property owners. The Department is also required to recognize closure and post-closure costs for its
General PP&E and environmental corrective action costs for current operations. Each of the Department's
major reporting entities is responsible for tracking and reporting all required environmental information
related to environmental restoration costs, other accrued environmental costs, disposal costs of weapon
systems, and environmental costs related to BRAC actions.
The Department follows the Comprehensive Environmental Response, Compensation, and
Liability Act (CERCLA), Superfund Amendments and Reauthorization Act of 1986 (SARA), Resource
Conservation and Recovery Act (RCRA) or other applicable federal or state laws to clean up contamination.
The CERCLA and RCRA require the Department to clean up contamination in coordination with regulatory
agencies, current owners of property damaged by the Department, and third parties with partial
responsibility for environmental restoration. Failure to comply with agreements and legal mandates puts
the Department at risk of incurring fines and penalties.
Laws concerning cleanup requirements for nuclear-powered naval vessels govern the Department’s
environmental policy and regulations for these vessels. The Atomic Energy Act of 1954, as amended,
assures the proper management of source, special nuclear, and byproduct materiel. The Department
coordinates nuclear power actions with the Department of Energy. The Nuclear Waste Policy Act of 1982,
as amended, requires owners and generators of high-level nuclear waste and spent nuclear fuel to pay their
share of the cost of the program. The Low-Level Radioactive Waste Policy Amendments Act of 1985, as
amended, provides for the safe and efficient management of low-level radioactive waste.
The Chemical Weapons Disposal Program is based on the NDAA for FY 1986, directing the
Department to destroy the unitary chemical stockpile in accordance with the Chemical Weapons
Convention Treaty.
Methods for Assigning Total Cleanup Costs to Current Operating Periods
The Department uses engineering estimates and independently validated models to project
environmental costs. The models include the Remedial Action Cost Engineering Requirements (RACER)
application and the Normalization of Data System. The Department validates the models in accordance
with DoD Instruction 5000.61 and estimates liabilities based on data received during preliminary
assessment and site investigation. The Department primarily uses engineering estimates after obtaining
extensive data during the remedial investigation/feasibility phase of the environmental project.
Once the environmental cost estimates are complete, the Department complies with accounting
standards to charge costs to current and/or future operating periods. The Department expensed cleanup
costs for General PP&E placed into service prior to October 1, 1997, unless costs are to be recovered
through user charges. As costs are recovered, the Department expenses cleanup costs associated with the
asset life that has passed since the General PP&E was placed into service. The Department systematically
recognizes the remaining cost over the life of the assets.
For General PP&E placed into service after September 30, 1997, the Department expenses
associated environmental costs using two methods – (1) physical capacity for operating landfills and (2) life
expectancy in years for all other assets. The Department expenses the full cost to clean up contamination

Financial Section
for Heritage Assets and Stewardship Land and certain other General PP&E when the asset is placed into
service.
The unrecognized portion of the estimated total cleanup costs associated with disposal of General
PP&E as of September 30, 2019 was $4.3 billion, and was $4.8 billion as of September 30, 2018.
Nature and Possible Changes in Estimated Cleanup Costs
Environmental liabilities are subject to changes in laws and regulations, agreements with regulatory
agencies, and advances in technology. The Department is unaware of pending changes affecting its
estimated cleanup costs.
The Department revised estimates resulting from previously unknown contaminants, re-estimation
based on different assumptions, and other changes in project scope.
Uncertainty Regarding Accounting Estimates
The accounting estimates used to calculate the reported environmental liabilities use reasonable
judgments and assumptions based on available information. Actual results may materially vary if
agreements with regulatory agencies require remediation to a different degree than anticipated when
calculating the estimates. Liabilities can be further affected if investigation of the environmental sites
reveals contamination levels differing from estimate parameters.
The Department is responsible for environmental restoration and corrective action for buried
chemical munitions and agents; however, a reasonable estimate is indeterminable because the extent of the
buried chemical munitions and agents is unknown.
The Department has ongoing studies for FUSRAP and will update its estimate as additional
information is identified.
The Department may incur costs for restoration initiatives in conjunction with returning overseas
Defense facilities to host nations. The Department continues its efforts to reasonably estimate required
restoration costs.
Asbestos-Related Cleanup Costs:
The Department maintains structures and facilities that may contain asbestos material in the
construction or renovation. At this time, the Department is working towards assessing a reasonable
estimate for the total cleanup costs related to friable and non-friable asbestos.

Financial Section
Note 15. Other Liabilities

Table 15. Other Liabilities
($ in millions) Current Non-Current
Total
Liability Liability
Intragovernmental
Advances from Others $ 2,032.3 $ - $ 2,032.3
Deposit Funds and Suspense Account Liabilities 115.5 - 115.5
Disbursing Officer Cash 828.5 - 828.5
Judgment Fund Liabilities 800.2 - 800.2
FECA Reimbursement to the Department of Labor 471.8 578.3 1,050.1
Custodial Liabilities 216.1 2,052.4 2,268.5
Employer Contributions and Payroll Taxes Payable 608.4 - 608.4
Other Liabilities 72.8 0.7 73.5
Total Intragovernmental Other Liabilities 5,145.6 2,631.4 7,777.0
Non-Federal
Accrued Funded Payroll and Benefits 10,297.9 - 10,297.9
Advances from Others 5,303.0 (8.2) 5,294.8
Deposit Funds and Suspense Accounts 3,298.2 - 3,298.2
Non-Environmental Disposal Liabilities
M ilitary Equipment (Non-Nuclear) 1,179.2 65.9 1,245.1
Conventional M unitions Disposal - 6.0 6.0
Accrued Unfunded Annual Leave 10,721.3 - 10,721.3
Capital Lease Liability - - -
Contract Holdbacks 2,752.4 15.6 2,768.0
Employer Contribution and Payroll Taxes Payable 732.3 - 732.3
Contingent Liabilities 493.6 1,055.8 1,549.4
Other Liabilities 226.8 618.4 845.2
Total Non-Federal Other Liabilities 35,004.7 1,753.5 36,758.2
Total Other Liabilities $ 40,150.3 $ 4,384.9 $ 44,535.2

Financial Section
Table 15. Other Liabilities
Restated
($ in millions) Current Non-Current
Total
Liability Liability
Intragovernmental
Advances from Others $ 1,739.8 $ - $ 1,739.8
Deposit Funds and Suspense Account Liabilities 242.0 - 242.0
Disbursing Officer Cash 867.6 - 867.6
Judgment Fund Liabilities 573.8 - 573.8
FECA Reimbursement to the Department of Labor 485.5 604.0 1,089.5
Custodial Liabilities 183.6 2,065.3 2,248.9
Employer Contributions and Payroll Taxes Payable 536.2 - 536.2
Other Liabilities 105.9 - 105.9
Total Intragovernmental Other Liabilities 4,734.4 2,669.3 7,403.7
Non-Federal
Accrued Funded Payroll and Benefits 10,146.3 - 10,146.3
Advances from Others 5,639.4 (2.0) 5,637.4
Deposit Funds and Suspense Accounts 2,986.8 - 2,986.8
Non-Environmental Disposal Liabilities
M ilitary Equipment (Non-Nuclear) 1,166.6 60.5 1,227.1
Conventional M unitions Disposal - 6.0 6.0
Accrued Unfunded Annual Leave 10,589.6 - 10,589.6
Capital Lease Liability - - -
Contract Holdbacks 534.9 27.4 562.3
Employer Contribution and Payroll Taxes Payable 586.8 - 586.8
Contingent Liabilities 695.6 5,347.6 6,043.2
Other Liabilities 232.3 - 232.3
Total Non-Federal Other Liabilities 32,578.3 5,439.5 38,017.8
Total Other Liabilities $ 37,312.7 $ 8,108.8 $ 45,421.5
Restatement
The Department corrected a $57.1 million overstatement of Non-Federal Advances from Others.
See Note 28, Restatements, for further information.
Intragovernmental Other Liabilities
Advances from Others represent liabilities for collections received to cover future expenses or
acquisition of assets.
Deposit Funds and Suspense Accounts represent liabilities for receipts held in suspense temporarily
for distribution to another fund or entity or held as an agent for others and paid at the direction of the owner.
Disbursing Officers Cash represents liabilities for currency on hand; cash on deposit at designated
depositories; cash in the hands of deputy disbursing officers, cashiers, and agents; negotiable instruments
on hand; and similar notes advanced from the Treasury under various authorities. Disbursing Officers Cash
is non-entity, restricted cash.
For information on Judgement Fund Liabilities, see Note 17, Commitments and Contingencies.

Financial Section
Federal Employees’ Compensation Act (FECA) Reimbursement to the Department of Labor

represents liabilities for billed amounts payable in FY 2019 and FY 2020 and unbilled amounts, including
both incurred and an estimated accrual. Refer to Note 13, Military Retirement and Other Federal
Employment Benefits, for the estimated FECA actuarial liability.
Custodial Liabilities represents liabilities for collections reported as non-exchange revenues where
the Department is acting on behalf of another Federal entity.
Employer Contributions and Payroll Taxes Payable represents the employer portion of payroll taxes
and benefit contributions for health benefits, retirement, life insurance and voluntary separation incentive
payments.
Other Liabilities primarily consists of unemployment compensation liabilities.
Non-Federal Other Liabilities
Advances from Others includes an abnormal balance for the non-current portion of the liability.
The Department is currently researching and working to resolve this.
Military Equipment (Non-Nuclear) is a part of the Non-Environmental Disposal liability related to
the final disposition of equipment, munitions, and other national defense weapon systems that are
considered non-nuclear. Disposal measurements involve the use of cost estimates that consider the
anticipated level of effort required to dispose of the item.
Contract Holdbacks are amounts earned by contractors or suppliers during the production period
but not yet paid to the contractor/supplier to ensure future performance. Beginning in FY 2019, the
liabilities for progress payments are included in contract holdbacks for the non-current portion and accounts
payable for the current portion. In FY 2018, Contingent Liabilities included $4.3 billion, related to
contracts authorizing progress payments based on cost as defined in the Federal Acquisition Regulation
(FAR).
Contingent Liabilities for FY 2019 and 2018 include legal contingent liabilities.
Other Liabilities consist primarily of estimated costs for services provided; accrued liabilities which
offset inventory owned and managed on behalf of foreign governments; and undistributed international
tariff receipts.
Life Insurance Liabilities and Other Insurance Programs
The Department’s life and other insurance programs covering civilian employees are provided
through the Office of Personnel Management (OPM). The Department does not negotiate the insurance
contracts and incurs no liabilities directly to the insurance companies. Employee payroll withholdings
related to the insurance and employer matches are submitted to OPM.

Financial Section
Note 16. Leases

Capital Leases:
The Department is reporting capital lease equipment and related amortization related to an
arrangement for Indefeasible Right of Use agreements, allowing the Department access to portions of fiber
optic, undersea cables. In addition, the Department has fully depreciated leased equipment for which no
future lease payments are due.
Table 16A. Entity as Lessee – Assets Under Capital Lease
As of September 30
($ in millions)
2019 2018
Land and Buildings $ - $ 0.7
Equipment $ 366.2 $ 353.0
Other $ - $ -
Accumulated Amortization $ (283.8) $ (257.5)
Total Assets Under Capital Leases $ 82.4 $ 96.2
Description of Lease Arrangements:

Lease arrangements provide information that describes the nature of the leases, such as major asset
categories and/or the number of locations where building space is leased, the range of dates when lease
terms expire, and, if applicable, the accounting treatment of rent holidays and leasehold improvements.
Future Payments Due for Federal and Non-Federal Capital Leases
The Department currently has no significant future capital lease payments with terms longer than
one year.
Operating Leases:
The future lease payments due presented in Table 16B are for non-cancelable operating leases only.
Unlike capital leases, operating leases do not transfer the benefits and risks of ownership; rather, payments
for operating leases are expensed over the life of the lease. Future year cost projections use the Consumer
Price Index. Office space is the largest component of land and building leases. Other leases are primarily
commercial leases with the general public and include automobile leases.

Financial Section
Table 16B. Future Payments Due for Non-Cancelable Operating Leases
($ in millions) Asset Category
Land and Buildings Equipment Other Total
Federal
Fiscal Year
2020 647.0 3.8 96.1 746.9
2021 440.9 3.5 93.2 537.6
2022 438.5 3.3 94.9 536.7
2023 433.0 3.4 96.8 533.2
2024 434.2 2.7 98.7 535.6
After 5 Years 923.7 6.5 31.0 961.2
Total Federal Future Lease Payments 3,317.3 23.2 510.7 3,851.2
Non-Federal
Fiscal Year
2020 37.0 0.9 23.4 61.3
2021 53.3 0.8 23.9 78.0
2022 35.1 0.3 24.4 59.8
2023 30.9 0.3 24.9 56.1
2024 27.5 - 25.4 52.9
After 5 Years 27.9 - 30.5 58.4
Total Non-Federal Future
Lease Payments 211.7 2.3 152.5 366.5
Total Future Lease Payments $ 3,529.0 $ 25.5 $ 663.2 $ 4,217.7

Financial Section
Note 17. Commitments and Contingencies

Legal Contingencies
The Department is a party in various administrative proceedings, legal actions, and other claims
awaiting adjudication which may result in settlements or decisions adverse to the Federal government.
These matters arise in the normal course of operations; generally relate to environmental damage, equal
opportunity, and contractual matters; and their ultimate disposition is unknown. In the event of an
unfavorable judgment against the Government, some of the settlements are expected to be paid from the
Treasury Judgment Fund. In most cases, the Department does not have to reimburse the Judgment Fund;
reimbursement is only required when the case comes under either the Contracts Disputes Act or the
No FEAR Act.
In accordance with SFFAS 5, Accounting for Liabilities of the Federal Government, as amended
by SFFAS 12, Recognition of Contingent Liabilities Arising from Litigation, an assessment is made as to
whether the likelihood of an unfavorable outcome is considered probable, reasonably possible, or remote.
The Department has accrued contingent liabilities for material contingencies where an unfavorable outcome
is considered probable and the amount of potential loss is measurable. No amounts have been accrued for
contingencies where the likelihood of an unfavorable outcome is less than probable, where the amount or
range of potential loss cannot be estimated due to a lack of sufficient information, or for immaterial
contingencies. The presented amounts accrued for legal contingent liabilities are included within the
contingent liabilities amount reported in Note 15, Other Liabilities.
Table 17. Summary of Legal Contingent Liabilities*
($ in millions) Accrued Estimated Range of Loss
Liabilities Lower End Upper End
Legal Contingent Liabilities

Probable $ 1,363.2 $ 606.5 $ 1,115.8
Reasonably Possible $ 1,335.2 $ 15,910.6
* OMB Circular No. A-136, issued June 28, 2019, revised the presentation of commitments
and contingencies. The revised format substantially differs from the format published in FY 2018.
Comparative FY 2018 numbers are not available in this format and, therefore, are not presented.
As of September 30, 2019, legal claims exists for which the estimated loss amount or the range of
loss cannot be reasonable measured. The ultimate outcomes in these matters cannot be predicted at this
time. Sufficient information is not currently available to determine if the ultimate resolution of the
proceeding, actions, and claims will materially affect the Department's financial position or results of
operation.
Environmental Contingencies
The Department does not have any known environmental contingent liabilities to include friable
and non-friable asbestos cleanup costs deemed probable but not reasonably estimable.
Other Commitments and Contingencies
The Department is a party in numerous individual contracts that contain clauses, such as price
escalation, award fee payments, or dispute resolution, which may potentially result in a future outflow of

Financial Section
budgetary resources. Contingencies considered both measurable and probable in the amount of
$186.2 million have been accrued. These liabilities are included within the contingent liabilities amount
reported in Note 15, Other Liabilities.
It is the Department’s practice to enter into treaties and other international agreements that do not
create contingent liabilities, as defined in SFFAS 5. The Department executes project agreements pursuant
to the framework cooperative activity agreements with foreign governments. All of these agreements give
rise to obligations that are appropriately reported in Department’s financial statements, pursuant to legal
authority and appropriated funds; none are contingent.
Commitments
In FY 2019, the Department has $2.3 billion in obligations related to canceled appropriations for
which it has a contractual commitment for payment, $909.7 million for contractual arrangements related to
loan guarantees, and $4.2 billion related to non-cancelable operating leases which may require future
financial obligations. In FY 2018, the Department had $1.5 billion in obligations related to canceled
appropriations for which it has a contractual commitment for payment, $950.4 million for contractual
arrangements related to loan guarantees, and $5.2 billion related to non-cancelable operating leases which
may require future financial obligations. See Note 7, Direct Loan and Loan Guarantees, and Note 16,
Leases, for additional information.

Financial Section
Note 18. Funds from Dedicated Collections

The Department’s Funds from Dedicated Collections are financed by specifically identified
revenues and other financing sources provided by non-federal sources. These specifically identified
revenues and other financing sources are required by statute to be used for designated activities, benefits,
or purposes and must be accounted for separately from the Department’s general revenues. There has been
no legislation in FY 2019 or FY 2018 which has significantly altered the purposes of the Department’s
Funds from Dedicated Collections.
The disclosures in this note are made in accordance with SFFAS 27, as amended by SFFAS 43.
Table 18A. Combined Balance Sheet – Funds from Dedicated Collections
($ in millions) Harbor Rivers and
M aintenance Harbors Other Combined
and Related Contributed and Funds Total
Funds Advance Fund
Assets
Fund Balance with Treasury $ 127.4 $ 1,859.8 $ 2,296.1 $ 4,283.3
Investments 9,319.2 - 1,747.5 11,066.7
Accounts and Interest Receivable 543.7 2.2 5.6 551.5
Other Assets 130.9 283.9 713.9 1,128.7
Total Assets $ 10,121.2 $ 2,145.9 $ 4,763.1 $ 17,030.2
Liabilities and Net Position

Accounts Payable and Other Liabilities $ 6.2 $ 1,900.0 $ 103.0 $ 2,009.2
Total Liabilities 6.2 1,900.0 103.0 2,009.2
Unexpended Appropriations - - - -
Cumulative Results of Operations 10,115.0 245.9 4,660.1 15,021.0
Total Liabilities and Net Position $ 10,121.2 $ 2,145.9 $ 4,763.1 $ 17,030.2
Funds Advance Fund
Assets
Fund Balance with Treasury $ 297.4 $ 1,598.2 $ 2,172.6 $ 4,068.2
Investments 9,231.6 - 1,391.8 10,623.4
Accounts and Interest Receivable 504.1 6.5 6.9 517.5
Other Assets 133.5 296.3 719.0 1,148.8
Total Assets $ 10,166.6 $ 1,901.0 $ 4,290.3 $ 16,357.9
Liabilities and Net Position

Accounts Payable and Other Liabilities $ 26.2 $ 1,645.0 $ 72.1 $ 1,743.3
Total Liabilities 26.2 1,645.0 72.1 1,743.3
Unexpended Appropriations - - - -
Cumulative Results of Operations 10,140.4 256.0 4,218.2 14,614.6
Total Liabilities and Net Position $ 10,166.6 $ 1,901.0 $ 4,290.3 $ 16,357.9

Financial Section
Table 18B. Combined Statement of Net Cost – Funds from Dedicated Collections
Funds Advance Fund
Gross Program Costs $ 49.9 $ 291.2 $ 1,583.3 $ 1,924.4

Less: Earned Revenues - (386.7) (324.2) (710.9)
Net Cost of Operations $ 49.9 $ (95.5) $ 1,259.1 $ 1,213.5

Funds Advance Fund
Gross Program Costs $ 85.6 $ 316.5 $ 1,811.3 $ 2,213.4

Less: Earned Revenues - (400.5) (308.8) (709.3)
Net Cost of Operations $ 85.6 $ (84.0) $ 1,502.5 $ 1,504.1
Table 18C. Combined Statement of Changes in Net Position – Funds from Dedicated Collections

Funds Advance Fund
Net Position, Beginning of Period $ 10,140.4 $ 256.0 $ 4,218.2 $ 14,614.6

Budgetary Financing Sources 25.3 - 1,650.1 1,675.4
Other Financing Sources (0.8) (105.6) 50.9 (55.5)
Less: Net Cost of Operations 49.9 (95.5) 1,259.1 1,213.5
Change in Net Position (25.4) (10.1) 441.9 406.4
Net Position, End of Period $ 10,115.0 $ 245.9 $ 4,660.1 $ 15,021.0

Funds Advance Fund
Net Position, Beginning of Period $ 10,314.5 $ 249.9 $ 4,054.5 $ 14,618.9

Budgetary Financing Sources 373.4 - 1,584.5 1,957.9
Other Financing Sources (461.9) (77.9) 81.7 (458.1)
Less: Net Cost of Operations 85.6 (84.0) 1,502.5 1,504.1
Change in Net Position (174.1) 6.1 163.7 (4.3)
Net Position, End of Period $ 10,140.4 $ 256.0 $ 4,218.2 $ 14,614.6
Tables 18A, 18B, and 18C are presented on a combined basis and relate solely to Funds from
Dedicated Collections. The Net Position amounts related to Funds from Dedicated Collections reflected
on Tables 18A and 18C will not equal those reflected on the DoD Agencywide Balance Sheet and Statement
of Changes in Net Position, as those statements are presented on a consolidated basis. Refer to Note 20,

Financial Section
Disclosures Related to the Statement of Changes in Net Position, for additional information on reconciling
the combined Funds from Dedicated Collections Net Position amounts to the consolidated Funds from
Dedicated Collections Net Position amounts.
Purpose, Source of Revenue, and Authority for Funds from Dedicated Collections
Harbor Maintenance and Related Funds
Harbor Maintenance Trust Fund (26 U.S.C. §9505) – The United States Army Corps of Engineers
(USACE) Civil Works mission is funded by the Energy and Water Development Appropriations Acts. The
Water Resources Development Act of 1986 covers a portion of USACE operations and maintenance costs
for deep draft navigation. The Harbor Maintenance Trust Fund is available for making expenditures to
carry out the functions specified in the Act and for the payment of all administrative expenses incurred by
the Treasury, USACE, and the Department of Commerce. Taxes collected from imports, domestics,
passengers, and foreign trade are deposited into the Trust Fund. The Bureau of the Fiscal Service manages
and invests for the Trust Fund.
Coastal Wetlands Restoration Trust Fund and Coastal Wetlands Planning, Protection, and
Restoration Act (16 U.S.C. §§3951-3956) – USACE, Environmental Protection Agency, and Fish and
Wildlife Service are authorized to work with the State of Louisiana to achieve a goal of "no net loss of
wetlands" in coastal Louisiana. USACE is also responsible for allocating funds. Federal contributions are
75 percent of project costs, or 85 percent if the state has an approved Coastal Wetlands Conservation Plan.
This Trust Fund receives funding from the Sport Fish Restoration and Boating Trust Fund.
Inland Waterways Trust Fund (26 U.S.C. §9506) – Excise taxes from the public are used by
USACE for navigation, construction, and rehabilitation projects on inland waterways. The Bureau of the
Fiscal Service manages and invests for the Trust Fund.
Rivers and Harbors Contributed and Advance Funds
Rivers and Harbors Contributed and Advance Funds (33 U.S.C. §§701h, 702f, and 703) –
Whenever any state or political subdivision offers to advance funds for a flood control project authorized
by law, the Secretary of the Army (executed by USACE) may accept such funds and expend them in the
immediate performance of such work. The funding is used to construct, improve, and maintain levees,
water outlets, flood control, debris removal, rectification, enlargement of river channels, and similar work,
in the course of flood control and river and harbor maintenance.
Other Funds from Dedicated Collections
Other funds from dedicated collection have been aggregated in accordance with SFFAS 43.
Special Recreation Use Fees (16 U.S.C. §§460l-6a and 6812(e)(1)) – The USACE charges and
collects Special Recreation Use Fees at campgrounds located at lakes and reservoirs under their jurisdiction.
Allowable fees include daily use fees, admission fees, recreational fees, annual pass fees, and other permit
type fees. Receipts cover operation and maintenance of recreational sites.
Hydraulic Mining in California, Debris (33 U.S.C. §683) – Operators of hydraulic mines allowing
debris to flow to a body restrained by a dam or other work erected by the California Debris Commission
are required to pay an annual tax as determined by the Commission. USACE collects taxes and expends
funds under the direction of the Department of the Army. Funds repay advances by the Federal Government
or other agencies for construction, restraining works, settling reservoirs, and maintenance.

Financial Section
Payments to States, Flood Control Act of 1954 (33 U.S.C. §701c-3) – USACE collects receipts for
the leasing of lands acquired by the U.S. for flood control, navigation, and allied purposes (including the
development of hydroelectric power). Funds received are appropriated and made available for use in the
following fiscal year with 75 percent of funds provided to the state where the property is located. States
may expend the funds for the benefit of public schools and public roads of the counties where the property
is located, or for defraying county government expenses.
Maintenance and Operation of Dams and Other Improvements of Navigable Waters
(16 U.S.C. §§803(f) and 810) – The Federal Energy Regulatory Commission (FERC) assesses charges
against licensees when a reservoir or other improvement is constructed by the U.S. All proceeds from
Indian reservations are credited to the Indians of the reservations. All other proceeds arising from licenses,
except those established by the FERC for administrative reimbursement, are paid to the Treasury and
allocated for specific uses. The Department of the Army is allocated 50 percent of charges from all licenses,
except licenses for the occupancy and use of public lands and national forests. These funds are deposited
in a special fund and used for maintenance, operation, and improvement of dams, and other navigation
structures owned by the U.S., or in construction, maintenance, or operation of headwater, or other
improvements to navigable waters of the U.S.
Fund for Non-Federal Use of Disposal Facilities (for dredged material) (33 U.S.C. §2326) – Non-
federal interests may use dredged material disposal facilities under the jurisdiction of, or managed by, the
Secretary of the Army if the Secretary determines use will not reduce the availability of the facility for
project purposes. Fees may be imposed to recover capital, operation, and maintenance costs of the disposal
facility from which the fees were collected.
Defense Commissary Agency Surcharge Trust Fund (10 U.S.C. §2685) – Surcharge on sales of
commissary goods finance the Commissary System operating expenses and capital purchases, precluded
by law from being paid with appropriated funds. Revenue is generated through a five percent surcharge
applied to each sale. These funds finance commissary-related information technology investments,
equipment, advance design modifications to prior year construction projects, and maintenance and repair
of facilities and equipment.

Financial Section
Note 19. General Disclosures Related to the Statement of Net Cost

Table 19. Costs and Exchange Revenue by Major Program
Restated
($ in millions)
Military Retirement Benefits

Gross Cost $ 106,422.7 $ 104,973.1
Less: Earned Revenues (36,784.1) (41,456.8)
Losses (Gains) from Actuarial Assumption
Changes for M ilitary Retirement Benefits 136,377.5 17,019.2
Net Program Costs 206,016.1 80,535.5
Civil Works
Gross Cost 11,594.9 12,603.8
Losses (Gains) from Actuarial Assumption Changes
for M ilitray Retirement Benefits - -
Military Personnel
Gross Cost 150,995.7 145,255.3
Operations, Readiness & S upport

Gross Cost 297,033.2 259,690.3
for M ilitray Retirement Benefits 2,431.0 (284.2)
Procurement
Gross Cost 126,512.6 112,506.4
Research, Development, Test & Evaluation

Gross Cost 104,654.5 88,386.3
Family Housing & Military Construction

Gross Cost 25,123.1 11,714.5
Total Net Cost $ 870,643.0 $ 661,381.1

Financial Section
Restatement
The Department corrected a $36.8 million understatement in Gross Costs – Operations, Readiness
& Support and a net $27.3 million understatement in Earned Revenue, resulting in the correction of a
$9.5 million understatement in Total Net Cost. See Note 28, Restatements, for further information.
Other Disclosures
The Statement of Net Cost (SNC) represents the net cost of programs and organizations of the
Department supported by appropriations or other means. The intent of the SNC is to provide gross and net
cost information related to the amount of output or outcome for a given program or organization
administered by a responsible reporting entity. The Department’s current processes and systems capture
costs based on appropriation groups as presented in the schedule above. The lower level costs for major
programs are not presented as required by the Government Performance and Results Act of 1993 (GPRA).
The Department is in the process of reviewing available data and developing a cost reporting methodology
required by SFFAS No. 4, “Managerial Cost Accounting Concepts and Standards for the Federal
Government as amended by SFFAS No. 55, “Amending Inter-Entity Cost Provisions.”
The Department implemented SFFAS No. 55 in FY 2018 which rescinded SFFAS No. 30, “Inter-
Entity Cost Implementation: Amending SFFAS No. 4, Managerial Cost Accounting Standards and Concepts
and Interpretation 6, Accounting for Imputed Intra-departmental Costs: An Interpretation of SFFAS No.
4.”
The Department’s military retirement and postemployment costs are reported in accordance with
SFFAS No. 33, “Pensions, Other Retirement Benefits, and Other Postemployment Benefits: Reporting the
Gains and Losses from Changes in Assumptions and Selecting Discount Rates and Valuation Dates.” The
standard requires the separate presentation of gains and losses from changes in long term assumptions used
to estimate liabilities associated with pensions, other retirement benefits, and other postemployment
benefits on the SNC.

Financial Section
Note 20. Disclosures Related to the Statement of Changes in Net Position

Cumulative Results of Operations – Prior Period Adjustments
The Department recorded prior period adjustments under SFFAS 21, SFFAS 48, and SFFAS 50,
that increased the FY 2019 beginning balance $11.5 billion from ($344.2) billion to ($332.7) billion. In
FY 2018, the Department recorded prior period adjustments that decreased the 2018 beginning balance
$2.5 billion from ($390.1) billion to ($392.6) billion These prior period adjustments are attributable to the
Correction of Error and/or Change in Accounting Principle.
The Department corrected an error in its financial statements for assets and net position corrected
under SFFAS 21. SFFAS 21 requires that reporting entities restate prior period financial statements for
material errors discovered in the current period, if such statements are provided for comparative purposes,
and if the effect of the error would be material to the financial statements in either period. During FY 2019,
the Department increased the beginning Cumulative Results of Operations and Assets by $7.2 billion due
to the correction of an error.
Various components with the Department elected to implement new accounting principles in
FY 2019 and FY 2018. FASAB issued SFFAS 48 and SFFAS 50 which permitted alternative methods in
establishing opening balances and are effective for periods beginning after September 30, 2016 with early
implementation allowed. In FY 2019, these changes in accounting principles increased the beginning
Cumulative Results of Operations by $4.3 billion as the components established opening balances for
General PP&E (specifically, equipment and software). In FY 2018, these changes in accounting principles
decreased the beginning Cumulative Results of Operations by ($2.5) billion as the components established
opening balances for General PP&E (specifically, land and buildings).
Restatements
For FY 2018, the Department corrected a $66.6 million understatement in the Beginning Balances
for Unexpended Appropriations, offset by a $9.5 million understatement in Appropriations Used, resulting
in the correction of a $57.1 million understatement in Total Unexpended Appropriations. In addition, a
$1.5 billion understatement and offsetting overstatement was corrected for Nonexchange Revenue and for
Transfers-In/Out Without Reimbursement, respectively. This resulted in corrections of understatements of
$9.5 million for Total Financing Sources and $57.1 million for Net Position. See Note 28, Restatements,
for further information.
The Department restated FY 2018 Cumulative Results of Operations attributable to Dedicated
Collections and Other Funds. The adjustments for the periods ended September 30, 2018 and 2019
increases the Dedicated Collections $11.0 billion and decreases Other Funds $11.0 billion to accurately
reflect the breakout of Cumulative Operating Results. The net effect of this restatement on the Statement
of Changes in Net Position is zero. For its effect on the Balance Sheet, refer to Note 28, Restatements.
Other Financing – Other
The Department recorded $15.9 billion in FY 2019 as Other Financing – Other resulting from the
revaluation of General Plant and Equipment.

Financial Section
Reconciliation Differences
Statement of Budgetary Resources to the Statement of Changes in Net Position
Appropriations (Discretionary and Mandatory) reported on the Statement of Budgetary Resources
exceed Appropriations Received on the Statement of Changes in Net Position by $71.6 billion in FY 2019
and $68.8 billion in FY 2018. A reconciliation of these amounts is presented in the tables below.
Table 20A. Reconciliation of Appropriations on the Statement of Budgetary Resources to Appropriations
Received on the Statement of Changes in Net Position
For the year ended September 30 2019 2018

($ in billions)
Appropriations, S tatement of Budgetary Resources (S BR) $ 874.4 $ 863.6
Permanent and Temporary Reductions 101.6 95.8

Trust and Special Fund Receipts (172.5) (164.2)
M iscellaneous Items (0.7) (0.4)
Total Reconciling Difference (71.6) (68.8)
Appropriations Received, S tatement of Changes in Net Position $ 802.8 $ 794.8
Permanent and Temporary Reductions are primarily attributable to the amount of prior year
balances and current year budget authority permanently or temporarily reduced by enacted legislation.
Trust and Special Fund Receipts are not immediately available for obligation that are awaiting
authorizing legislation and or the satisfaction of specific legal requirements.
Miscellaneous Items primarily includes the current year authority transfers in, authority made
available from receipt or appropriation balances previously precluded from obligation, non-allocation
transfers of invested balances, re-estimated loan subsidy appropriation, and current year authority transfers
out.
Funds from Dedicated Collections Information to the Balance Sheet and Statement of Changes in Net
Position
Funds from Dedicated Collections information is presented on a combined basis in Note 18, Funds
from Dedicated Collections. The tables below summarize the elimination of intradepartmental activity
between Funds from Dedicated Collections and all Other Fund types to arrive at the consolidated Net
Position amounts presented on the DoD Agency-wide Balance Sheet and Statement of Changes in Net
Position.

Financial Section
Table 20B. Reconciliation of Combined Dedicated Collections and Other Funds to Consolidated Dedicated
Collections and Other Funds
($ in millions) Reconciling
Combined Consolidated
Difference
Unexpended Appropriations - Dedicated Collections $ - $ - $ -

Unexpended Appropriations - Other Funds 545,168.2 - 545,168.2
Cumulative Results of Operations - Dedicated Collections 15,021.0 (15,310.1) 30,331.1
Cumulative Results of Operations - Other Funds (430,262.4) 15,310.1 (445,572.5)
Total Net Position $ 129,926.8 $ - $ 129,926.8
As of September 30 2018 (Restated)

($ in millions) Reconciling
Combined Consolidated
Difference
Unexpended Appropriations - Dedicated Collections $ - $ - $ -

Unexpended Appropriations - Other Funds 529,803.7 - 529,803.7
Cumulative Results of Operations - Dedicated Collections 14,614.6 (13,119.4) 27,734.0
Cumulative Results of Operations - Other Funds (358,834.7) 13,119.4 (371,954.1)
Total Net Position $ 185,583.6 $ - $ 185,583.6

Financial Section
Note 21. Disclosures Related to the Statement of Budgetary Resources

The Statement of Budgetary Resources is presented on a combined basis in accordance with
OMB Circular No. A-136; thus, intra-entity transactions have not been eliminated from the amounts
presented. This presentation differs from that of the other principal financial statements, which are
presented on a consolidated basis.
Restatement
The Department corrected a $921.6 million understatement of Exempt from Apportionment,
Unexpired Accounts and overstatement of Unapportioned, Unexpired Accounts. See Note 28,
Restatements, for further information.
Net Adjustments to Unobligated Balance, Brought Forward, October 1
There were no material adjustments during FY 2019 to the budgetary resources available at the
beginning of the year.
Terms of Borrowing Authority Used
The Department utilizes borrowing authority for the Military Housing Privatization Initiative
(MHPI). Borrowing authority is used in compliance with OMB Circular No. A-129. See Note 7, Direct
Loans and Loan Guarantees, Non-Federal Borrower, for additional information related to MHPI.
Available Borrowing/Contract Authority, End of Period
No available borrowing authority remained at the end of the period for FY 2019 or 2018.
Budgetary Resources Obligated for Undelivered Orders
Table 21A. Available Borrowing/Contract Authority

($ in millions)
Available Borrowing and Contract Authority at

the End of the Period $ - $ -

Financial Section
Undelivered Orders at the End of the Period

Table 21B. Budgetary Resources Obligated for Undelivered Orders at the End of the Period

($ in millions)
Intragovernmental
Unpaid $ 92,795.2 $ 120,202.7
Prepaid/Advanced 3,523.4 3,285.7
Total Intragovernmental $ 96,318.6 $ 123,488.4
Non-Federal
Unpaid $ 381,742.3 $ 319,795.6
Prepaid/Advanced 20,370.1 23,988.3
Total Non-Federal $ 402,112.4 $ 343,783.9
Total Budgetary Resources Obligated for

Undelivered Orders At the End of the Period $ 498,431.0 $ 467,272.3
Legal Arrangements Affecting the Use of Unobligated Balances

A portion of the Department’s unobligated balances represent trust fund receipts collected in the
current fiscal year exceeding the amount needed to pay benefits or other valid obligations. These receipts
are temporarily precluded from obligation by law due to a benefit formula or other limitation. The receipts,
however, are assets of the funds and are available for obligation in the future. The Department operates
within the constraints of fiscal law and has no additional legal arrangements affecting the use of unobligated
balances.
Explanation of Differences between the SBR and the Budget of the U.S. Government
Table 21C presents a reconciliation between the budgetary resources, new obligations and upward
adjustments, distributed offsetting receipts, and net outlays in the FY 2018 column on the Combined
Statement of Budgetary Resources (SBR) to the actual amounts for FY 2018 from the “Analytical
Perspectives – Federal Budget by Agency and Account” and “Appendix – Detailed Budget Estimates by
Agency” sections of the FY 2019 President’s Budget. The FY 2020 Budget will display the FY 2018 actual
values and is expected to be published in February 2020 at https://www.whitehouse.gov/omb/budget.

Financial Section
Apportionment Categories for New Obligations and Upward Adjustments

Table 21C. Explanation of Differences Between the SBR and the Budget of the U.S. Government
For the year ended September 30 FY 2018 Actual

($ in billions) New
Distributed
Budgetary Obligations & Agency
Offsetting
Resources Upward Outlays, Net
Receipts
Adjustments
Combined S tatement of Budgetary Resources $ 1,252.6 $ 1,054.3 $ 102.0 $ 763.3

Expired Accounts that are Excluded from
the Budget of the U.S. Government (46.5) (18.8) - -
Closed accounts included in budget 0.1 0.1 - 0.1
1 1
Permanent Reporting Differences (0.1) (0.1) - -
Other 0.1 0.1 0.1 -
Budget of the U.S . Government $ 1,206.2 $ 1,035.6 $ 102.1 $ 763.4
1
The difference reported above for Budgetary Resources and New Obligations and Upward Adjustments is due to
different reporting requirements on the SBR versus the Budget.
Contributed Capital
There was no infusion of capital received in FY 2019.
Other Disclosures
In compliance with OMB guidance, $129.9 billion of FY 2019 and $123.0 billion of FY 2018
General Fund appropriations received by the Department are also recognized on the SBR as appropriations
received for trust and special funds. This duplicate reporting on the SBR relates to amounts from the
Military Services’ contributions and Treasury’s payments to the Military Retirement Trust Fund and
Medicare-Eligible Retiree Health Care Fund.
The Department received additional funding of $68.8 billion in FY 2019 and $65.9 billion in FY
2018 to cover obligations incurred above baseline operations in support of contingency operations.
The SBR reflects an unobligated expired appropriations in the amount of $22.7 billion, (2 percent
of total budget authority). The Department strives to obligate as close as prudently possible to the total
available budget authority before it expires. Its internal controls and systems for administrative control of
funds are designed to avoid over-obligating or over-expending funds in violation of the Antideficiency Act.
The enormous number of contracts, projects, and activities (for example, construction projects, complex
acquisitions, cutting edge/high risk technology efforts, and contingency operations) that must be carried out
without exceeding available budget authority do result in liabilities that must recorded against finite
unobligated expired appropriation balances. Consequently, some level of unobligated expired
appropriations must be available for recording adjustments to existing obligations, as authorized by
31.U.S.C. §1553.

Financial Section
Permanent Indefinite Appropriations:

The following permanent indefinite appropriations cover a wide variety of purposes to help the
Department accomplish its missions. These purposes primarily include: (1) military retirees’ health care
benefits, retirement and survivor pay, and education benefits for veterans; (2) wildlife habitat restoration
and water resources maintenance; (3) relocation of armed forces within a host nation; (4) separation
payments for foreign nationals; and (5) upkeep of libraries and museums.
The Department received the following permanent indefinite appropriations in FY 2019 and
FY 2018:
Department of the Army General Gift Fund (10 U.S.C. §2601(c)(1))
Department of the Navy General Gift Fund (10 U.S.C. §2601(c)(2))
Department of the Air Force General Gift Fund (10 U.S.C. §2601(c)(3))
Department of Defense General Gift Fund (10 U.S.C. §2601)
Disposal of Department of Defense Real Property (40 U.S.C. §572(b)(5)(A))
Lease of Department of Defense Real Property (40 U.S.C. §485(h))
Foreign National Employees Separation Pay Account, Defense (10 U.S.C. §1581)
United States Naval Academy Gift and Museum Fund (10 U.S.C. §8474)
Ship Stores Profits, Navy (10 U.S.C. §8620, 31 U.S.C. §1321)
Burdensharing Contributions (10 U.S.C. §2350j)
Forest Program (10 U.S.C. §2665)
Medicare-Eligible Retiree Health Care Fund (10 U.S.C. §1111)
Military Retirement Fund (10 U.S.C. §1461)
Education Benefits Fund (10 U.S.C. §2006)
Host Nation Support for U.S. Relocation Activities (10 U.S.C. §2350k)
Hydraulic Mining Debris Reservoir (33 U.S.C. §683)
Maintenance and Operation of Dams and Other Improvements of Navigable Waters (16 U.S.C. §810(a))
Payments to States (33 U.S.C. §701c-3)
Wildlife Conservation (16 U.S.C. §§670-670f)
Ainsworth Bequest (31 U.S.C. §1321)
DoD Family Housing Improvement Fund (10 U.S.C. §2883(a))
DoD Military Unaccompanied Housing Improvement Fund (10 U.S.C. §2883(a))
Voluntary Separation Incentive Fund (10 U.S.C. §1175(h))
Rivers & Harbors Contributed Funds (33 U.S.C. §§560, 701h)
Concurrent Receipt Accrual Payments to the Military Retirement Fund (10 U.S.C. §1466(b)(1))

Financial Section
Rocky Mountain Arsenal, Restoration (United States Statutes at Large, Volume 100, page 4003,
section 1367 (100 Stat. 4003 §1367))
Homeowners Assistance Fund (42 U.S.C. §3374(d), Public Law 111-5)
Payments to Military Retirement Fund, Defense (10 U.S.C. §1466)
Payment to Department of Defense Medicare-Eligible Retiree Health Care Fund (10 U.S.C. §1116(a))
Medicare-Eligible Retiree Health Fund Contribution, Navy (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Marine Corps (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Navy (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Marine Corps (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Army (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Army (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Army (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Air Force (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, Reserve Personnel, Air Force (10 U.S.C. §1116)
Medicare-Eligible Retiree Health Fund Contribution, National Guard Personnel, Air Force
(10 U.S.C. §1116)
Department of Defense Vietnam War Commemoration Fund, Defense (Public Law 110-181,
122 Stat. 141 §598)

Financial Section
Note 22. Disclosures Related to Incidental Custodial Collections

In FY 2019 and FY 2018, the Department collected $4.9 million and $11.8 million,
respectively, of incidental custodial revenues generated primarily from forfeitures of unclaimed
money and property. These funds are not available for use by the Department; the accounts are
closed and relinquished to the U.S. Treasury at the end of the fiscal year.

Financial Section
Note 23. Fiduciary Activities

Table 23A. Schedule of Fiduciary Activity

($ in millions)
Fiduciary Net Assets, Beginning of Year $ 77.9 $ 77.8

Fiduciary Revenues - -
Contributions 98.6 42.5
Investment Earnings 0.3 0.3
Gain (Loss) on Disposition of Investments, Net - -
Administrative and Other Expenses - -
Distibutions To and On Behalf Of Beneficiaries (109.8) (42.7)
Increase / (Decrease) in Fiduciary Net Assets (10.9) 0.1
Fiduciary Net Assets, End of Year $ 67.0 $ 77.9
Table 23B. Schedule of Fiduciary Net Assets

($ in millions)
Fiduciary Assets
Fund Balance with Treasury $ 67.0 $ 77.9
Investments - -
Other Assets - -
Fiduciary Liabilities
Less: Liabilities - -
Total Fiduciary Net Assets $ 67.0 $ 77.9
Fiduciary activities exist when the Department has collected, received, held, or made disposition
of assets on behalf of an individual or non-Federal entity. Fiduciary assets are not recognized on the
Balance Sheet. The Department is not aware of any non-valued fiduciary assets for which it has
management responsibility.
Public Law 89-538 authorized the Department, through the Savings Deposit Program (SDP), to
collect voluntary contributions from members of the Armed Forces serving in designated areas, up to
$10,000 per deployment per member. These contributions and earned interest (10% per year, paid
quarterly) are deposited in the Treasury on behalf of the members and kept as a separate fund. Military
members have access to SDP statements for viewing deposits and other activity. Funds are returned to a
military member upon request after leaving the designated area; however, at 120 days if a request is not
made, the funds are returned to the member via direct deposit by the Department. Funds in excess of
$10,000 may be withdrawn quarterly. Otherwise, while in the designated area, a withdrawal of deposit may
only be made in limited situations.

Financial Section
Note 24. Reconciliation of Net Cost to Net Outlays

Table 24. Reconciliation of the Net Cost of Operations to Net Outlays
($ in millions)
Intragovernmental With the public Total
Net Cost of Operations (S NC) (4,377.9) 875,020.9 870,643.0
Components of Net Cost that are Not Part of Net Outlays:
Property, plant, and equipment depreciation $ - $ (67,691.6) $ (67,691.6)
Property, plant, and equipment disposal & revaluation - (9,029.7) (9,029.7)
Year-end credit reform subsidy re-estimates - 107.3 107.3
Unrealized valuation loss/(gain) on investments - - -
Other - (60,774.3) (60,774.3)
Increase/(decrease) in assets:
Account Receivable (2,466.7) 206.3 (2,260.4)
Loans Receivable - 41.2 41.2
Investments 37.0 - 37.0
Other Assets 79.3 (8,884.9) (8,805.6)
(Increase)/Decrease in Liabilities:
Accounts Payable 2,481.1 (10,925.0) (8,443.9)
Salaries and Benefits 97.1 (517.2) (420.1)
Insurance guarantee program liabilities - 7.7 7.7
Environmental and disposal liabilities - (5,713.5) (5,713.5)
Other Liabilities (Unfunded Leave, Unfunded FECA
Actuarial FECA) (200.2) (178,061.6) (178,261.8)
Other Financing S ources:
Federal Employee retirement benefit costs
paid by OPM and Imputed to the agency (5,237.4) - (5,237.4)
Transfers out (in) without reimbursement 73.0 - 73.0
Other imputed financing (372.4) - (372.4)
Total Components of Net Costs that
are Not part of Net Outlays (5,509.2) (341,235.3) (346,744.5)
Components of Net Outlays that are

Not Part of Net Cost:
Effect of prior year agencies credit reform
subsidy re-estimates $ - $ - $ -
Acquisition of capital assets 16.1 84,775.3 84,791.4
Acquisition of inventory 246.8 63,456.5 63,703.3
Acquisition of other assets - - -
Other 61,075.8 (1,841.5) 59,234.3
Total Components of Net Outlays that

are Not Part of Net Cost $ 61,338.7 $ 146,390.3 $ 207,729.0
Other Temporary Timing Differences $ - $ - $ -
Net Outlays $ 51,451.60 $ 680,175.90 $ 731,627.5
Agency Outlays, Net, S tatement of Budgetary

Resources $ 721,260.8
Reconciling Differences $ 10,366.7

Financial Section
The Reconciliation of Net Cost to Net Outlays demonstrates the relationship between the
Department’s Net Cost of Operations, reported on an accrual basis on the Statement of Net Cost, and Net
Outlays, reported on a budgetary basis on the Statement of Budgetary Resources. While budgetary and
financial accounting are complementary, the reconciliation explains the inherent differences in timing and
in the types of information between the two during the reporting period. The accrual basis of financial
accounting is intended to provide a picture of the Department’s operations and financial position, including
information about costs arising from the consumption of assets and the incurrence of liabilities. Budgetary
accounting reports on the management of resources and the use and receipt of cash by the Department.
Outlays are payments to liquidate an obligation, other than the repayment to the Treasury of debt principal.
Components of Net Cost that are Not Part of Net Outlays includes non-cash charges primarily
consisting of $180.8 billion in changes in Actuarial Pension and Health Insurance Liability and
$58.4 billion in depreciation, revaluation and disposal of property, plant and equipment.
Components of Net Outlays that are Not Part of Net Cost includes $148.5 billion in amounts paid
during the acquisition of capital assets and inventory. The Other line includes $62.2 billion recognized as
outlays in pass-through entities for Military Services contributions and Treasury payments to certain trust
funds. See Note 21, Disclosures Related to the Statement of Budgetary Resources for additional
information. The transaction of the pass-through entities are eliminated within consolidated financial
reporting, but are not eliminated in budgetary reporting which is presented on a combined basis. These
outlays primarily consist of payments made for costs incurred in prior years, as well as capitalized
purchased, that are not recognized in net cost in the current period.
The Reconciling Difference is due to timing differences between the recognition of
expenses/revenues and disbursements/collections on the Statement of Net Cost and Statement of Budgetary
Resources. Additionally, the Department’s diverse business events may be recorded using different, but
equally valid, transaction scenarios. Research is on-going to resolve the remaining difference.
Per OMB Circular A-136, in the initial year of implementation, the disclosure requirements that
were applicable in prior reporting periods are not required for comparative presentations.

Financial Section
Note 25. Public-Private Partnerships

Public-Private Partnerships (P3s) are risk-sharing arrangements lasting more than 5 years between
public and private sector entities that provide a service or asset for the government/general public. P3s can
be extremely complex agreements (e.g. structural arrangements and special purpose vehicles) involving a
wide variety of assets and liabilities and alternative financing arrangements (appropriated funds, third party
financing and/or significant amounts of private capital/investment). P3s are a form of investment that are
not reflected in the financial statements; therefore, disclosure is required so that financial statement users
can assess assets of the U.S. government, how effectively the assets are being managed, and the risks
associated with P3 arrangements.
SFFAS 49 Public-Private Partnerships, effective October 1, 2018, requires the disclosure of the
nature of the Government’s relationship with the private entities, the nature and magnitude of the relevant
activity during the period and balances at the end of the period, and a description of financial and non-
financial risks, potential benefits, and, if possible, the amount of the Government’s exposure to gains or
losses from the past or future operations of the disclosure entity or entities. SFFAS 49 helps achieve the
operating performance and budgetary integrity objectives outlined in Statement of Federal Financial
Accounting Concepts (SFFAC) 1, Objectives of Federal Financial Reporting, by making P3s more
understandable.
Military Housing Privatization Initiative (MHPI)
The National Defense Authorization Act for Fiscal Year 1996, Public Law 104-106 (110, Stat 186,
Section 2801), contains authorities for the Military Housing Privatization Initiative (MHPI). This act
includes a series of authorities that allow the Department (DoD) to work with the private sector to build,
renovate and sustain military housing. The goals are to obtain private capital to leverage government
dollars, make efficient use of limited resources, and use a variety of private-sector approaches to build and
renovate military housing faster and cheaper for American taxpayers. By engaging in P3s, the government
benefits through the use of expertise and tools afforded to private Limited Liability Companies (LLC), the
condition of military housing improvements occurred more expediently and efficiently than the traditional
Military construction process would allow. Title 10 U.S.C §§ 2871-2886 codifies the Service Secretaries’
MHPI authority, oversight, and accountability measures.
With the enactment of Pub. L. 115-91 § 603, and then Pub L. 115-232 § 606, the Military
Departments are required to make direct payments to the MHPI entities in an amount up to 5% of the Basic
Allowance for Housing (BAH) amount as calculated under Section 403(b)(3)(A)(i) of the military pay
statute in Title 37, U.S.C. § 403 for the area in which the covered housing existed through September
30, 2018. From October 1, 2018 forward, Pub. L. 115-232 § 606 instructs that payments to the MHPI
entities of 5% of BAH will occur monthly until Congress modifies or rescinds this direction.
Funding and Contributions
MHPI projects operate under long-term (generally 50 years) ground leases and associated legal
agreements with a Military Department, with one 25 year option period. The expected life of each MHPI
arrangement corresponds to the duration of the ground lease (generally 50 years), and negotiations between
the Military Departments and the private partners establish the duration of the ground lease based on the
minimum duration required to ensure project success. The DoD MHPI program is expected to engage in
future government direct loan and loan guarantees, which will be addressed in FY 2020.

Financial Section
The DoD MHPI program made direct cash contributions and loans to the LLCs. Cash contributions
to MHPI P3 partners from the DoD Family Housing Improvement Fund (FHIF) or DoD Military
Unaccompanied Housing Improvement Fund (MUHIF) requires Congressional notification
(10 U.S.C. § 2883(f)). There are no contractual requirements for additional federal contributions to the
LLCs.
The Military Departments are not required to contribute resources to the MHPI P3 beyond the
initial contribution to the FHIF or MUHIF. However, the enactment of Pub L. 115-91 § 603, required the
Military Departments to make direct payments to the MHPI entities (lessors) of 1% of the Basic Allowance
for Housing (BAH) amount for the period January 1, 2018 through December 31, 2018. The amount of
BAH was calculated under of the military pay statute in 37, U.S.C. § 403(b)(3)(A)(i) for the area in which
the covered housing existed. From September 1, 2018 forward, Pub L. 115-232 § 606 directs that payments
to the MHPI entities of 5% of BAH will occur monthly until Congress modifies or rescinds this direction.
The following table represents the aggregated Federal and Private Partner LLC contribution
amounts paid to MHPI Program and LLCs through September 30, 2019:
Table 25. Summary of Contributions
As of September 30
($ in millions) 2019
Military Department Contributions

Funding Contributions to DoD M HPI Program $ 2,771.1
Real Property Contributions to the LLCs (value of Real Property Assets (RPA)
Conveyed, per OM B Scoring Documents) 7,598.4
Direct Payments as Required by Pub. L. 115-91 § 603 (1% BAH) and
15-232 § 606 (5% BAH) 160.0
BAH Under § 403 of Title 37 2,738.4
DoD Contributions
Direct Cash Contributions $ 1,607.2
Differential Lease Payments 16.5
Direct Loans Disbursed 1,851.9
Contributions by Private Partners

Direct Cash Contributions $ 606.5
Bonds/Loans Contributed 11,315.0
Real Property and Land Contributions 5.2
Real Property Asset Donations 51.7
Risk
The Department’s risk of loss is the initial cash contribution to the program, the risk of default on
a government direct loan, the risk of a guaranty threshold event under a loan guaranty agreement, and the
failure to deliver quality housing services to Military Personnel. The private partner’s risk of loss includes
the recovery of the initial cash contributions, inability to repay bonds and/or loans, and the loss of a long-
term revenue source. The MHPI Operating Agreements and Lockbox Agreements do not explicitly identify
risk of loss contingencies, but some projects include reserve accounts for specific circumstances, such as
an Operating Expense Reserve Account or Utility Reserve Account to save funds for protecting against
unexpectedly high expenses. The total risk associated with these agreements are the total initial investment
(funding and net book value of assets at the time of transfer) of these projects plus the commercial loan
guarantees associated with three of the MHPI agreements. The LLC operates as its own entity, and all

Financial Section
assets revert back to the Department upon termination of the leasehold interest at no-cost to either party.
The Military Services rights and responsibilities are limited to monitoring the financial conditions of the
MHPI projects and reporting on them timely and accurately.
Investment Recognition
The Military Services investments in limited partnerships and LLCs engaged in privatized military
housing projects will be accounted for under the equity method of accounting. The FASAB currently has
not issued specific accounting standards for this type of financial arrangement. As a result, beginning in
FY 2020, the Department will apply a private sector accounting standard to account for investment/share
of the public-private partnerships: Financial Accounting Standards Board (FASB) Accounting Standards
Codification (ASC) 323 Investments – Equity Method and Joint Ventures. Furthermore, the Department
will treat such an investment/share as a consumption of budgetary resources, recording an obligation and
an outlay in an amount equal to the equity investment. According to ASC 323, investments in limited
partnerships generally should be accounted for under the equity method of accounting unless the investment
is so minor that the limited partner may have virtually no influence over the partnership’s operating or
financial policies. In practice, investments of more than 3 to 5 percent are viewed as more than minor. See
Note 5, Investments and Related Interest, for additional information on Other Investments.
Other Investments
Other potential investments may exist, which would qualify as P3s, per the disclosure
determinations set forth in SFFAS 49 and OMB Circular A-136. These are currently being researched by
the Military Services for scope and quantification.

Financial Section
Note 26. Disclosure Entities and Related Parties

In accordance with SFFAS 47 “Reporting Entity”, the Department is disclosing its relationship
with its Department-sponsored DoD Nonappropriated Fund Instrumentalities (NAFIs) and Federally
Funded Research and Development Centers (FFRDCs). The financial position and results of operations of
NAFIs and FFRDCs are not reported in the DoD consolidated financial statements.
The Department has relationships with DoD-sponsored Nonappropriated Fund Instrumentalities
(NAFIs) and Federally Funded Research and Development Centers (FFRDCs). The financial position and
results of operations of NAFIs and FFRDCs are not reported in the DoD consolidated financial statements.
NAFIs and FFRDCs are, in aggregate, not quantitatively material to the DoD consolidated financial
statement; however, both are qualitatively material due to the public accountability and high visibility of
these activities to Congress and their military constituents.
Nonappropriated Fund Instrumentalities
The Department has a distinctive relationship with NAFIs, entities supported in whole or in part by
nonappropriated funds (NAFs) that are intended to enhance the quality of life of DoD personnel, retired
Military Service members, and dependents of such members, and to support military readiness, recruitment,
and retention. The NAFs that support these entities are generated primarily by sales and user fees. NAFIs
are established by Department policy, controlled by the Military Departments, and governed by sections of
Title 10, U.S.C.. The Department does not have any ownership interest in the NAFIs; however, the
Department establishes them and requires DoD components to assign organizational responsibility for
NAFI administration, management, and control. A NAFI acts in its own name to provide or assist the
Secretaries of the Military Departments in providing programs for DoD personnel. There are currently
approximately 460 DoD NAFIs, classified into six program groups to ensure uniformity in the
establishment, management, allocation, and control or resource support:
• Military Morale, Welfare, and Recreational (MWR) Programs,

• Armed Services Exchange Programs,
• Civilian MWR Programs,
• Lodging Program Supplemental Mission Funds,
• Supplemental Mission Funds, and
• Special Purpose Central Funds.
The Under Secretary of Defense for Personnel and Readiness (USD(P&R)) exercises overall policy
direction for and oversight of DoD NAF activities. The Under Secretary of Defense (Comptroller)/Chief
Financial Officer (USD(C)/CFO) and the Defense Finance and Accounting Service (DFAS), in coordination
with the USD(P&R), are responsible for NAF accounting policy. DoD Components appoint advisory
groups to ensure that each NAFI is meeting the objectives for which they were created. Additionally, the
NAFIs are subject to annual financial audits conducted by independent public accounting firms.
NAFIs present only very limited financial and non-financial risks to the Department, as they are
separate legal entities apart from DoD, and they are operated and accounted for in financial systems separate
from DoD. Together, these factors limit the Federal Government’s financial exposure. NAFIs operate for
the benefit of DoD Service members, so they provide non pay benefits to DoD; however, the non-financial
risks arising from NAFI relationships are limited.

Financial Section
Federally Funded Research and Development Centers

The Department maintains contractual relationships with the parent organizations of ten DoD
sponsored FFRDCs to meet some special long-term research or development needs that cannot be met as
effectively by existing government or contractor resources. The work performed by the FFRDCs provide
significant benefits to the Department, which are considered critical to national security. FFRDCs that
provide support to the Department are classified into three categories – (1) research and development
laboratories, (2) systems engineering and integration centers, and (3) study and analysis centers.
FFRDC relationships are defined through a bi-lateral sponsoring agreement between each DoD
sponsoring organization and the parent organization that operates each FFRDC. All DoD funding for
FFRDC work is provided through the Department’s contract with the FFRDC’s parent organization. While
the Department does not control the day-to-day operations of the FFRDCs, the parent organization must
agree that the FFRDC will conduct its business in a manner befitting its special relationship with the
Department, operate in the public interest with objectivity and independence, and be free from
organizational conflicts of interest. The Department does not have any ownership interest in the FFRDCs.
An FFRDC may be used only for work within its purpose, mission, and general scope of effort, as
established in the sponsoring agreement. Additionally, Congress sets annual limits on the amount of staff-
years of technical effort that may be funded for FFRDCs. Together, the sponsoring agreements, contract
terms, and Congressional controls on staff-years of effort and funding, serve to limit the Federal
Government’s exposure to financial and non-financial risks arising from FFRDC relationships.
Related Parties
Organizations are considered related parties if: (1) the existing relationship, or one party to the
existing relationship, has the ability to exercise significant influence over the other party’s policy decisions
and (2) the organizations do not meet the inclusion principles of SFFAS 47. The Department has identified
that its Public Private Partnerships (P3) meet the criteria for disclosure as related parties and are continuing
to perform an assessment on all of its P3 investments to determine if they meet the criteria for consolidation.
See Note 25 Public Private Partnerships for additional disclosures.

Financial Section
Note 27. Reclassification of Balance Sheet, Statement of Net Cost, and

Statement of Changes in Net Position for Compilation in the U.S. Government
wide Financial Report
Agency financial statements, including the Department’s, are included in the Financial Report of
the U.S. Government (FR). The FY 2019 FR will be published by The Bureau of Fiscal Service upon its
release.
To prepare the FR, the Department of the Treasury requires agencies to submit an adjusted trial
balance, which is a listing of amounts by U.S. Standard General Ledger account that appear in the financial
statements. Treasury uses the trial balance information reported in the Government-wide Treasury Account
Symbol Adjusted Trial Balance System (GTAS) to develop a Reclassified Balance Sheet, Reclassified
Statement of Net Cost, and a Reclassified Statement of Changes in Net Position for each agency. Treasury
eliminates all intragovernmental balances from the reclassified statements and aggregates lines with the
same title to develop the FR statements.
The following tables display the relationship between each of the Department’s financial statements
(on the left side) and the Department’s corresponding reclassified statements (on the right side) prior to
elimination of intragovernmental balances and prior to aggregation of repeated FR line items.
“Non-Federal” transactions are with individuals, businesses, non-profit entities, and state, local,
and foreign governments.

Financial Section
Table 27A. Reclassification of Balance Sheet
As of September 30
($ in millions)
FY2019 Department of Defense S NC Line Items Used to Prepare FY 2019 Government-wide Balance S heet
Financial Statement Line Amount Reclassified Financial Statement Line Amount
1 Assets
2 Non-Federal
Cash and Other M onetary Assets (Note 4) $ 918.3
2.1 Cash and Other M onetary Assets $ 918.3
Total $ 918.3
Accounts Receivable, Net (Note 6) $ 5,894.5 2.2 Accounts and Taxes Receivable, Net $ 5,894.5
Total $ 5,894.5
Loans Receivable (Note 7) $ 1,738.7 2.3 Loans Receivable, Net $ 1,738.7

Total $ 1,738.7
Inventory and Related Property, Net (Note 8) $ 291,489.7 2.4 Inventories and Related Property, Net $ 291,489.7
Total $ 291,489.7
General Property, Plant and Equipment, Net (Note 9) $ 768,558.4 2.5 Property, Plant, and Equipment, Net $ 768,558.4
Total $ 768,558.4
Investments (Note 5) $ 3,511.6 2.6 Debt and Equity Securities $ 3,511.6

Total $ 3,511.6
Other Assets (Note 10) $ 19,543.1 2.8 Other Assets $ 19,543.1

Total $ 19,543.1
Total Non-Federal Assets $ 1,091,654.3 2.9 Total Non-Federal Assets $ 1,091,654.3
3 Federal
Fund Balance with Treasury (Note 3) $ 607,555.3 3.1 Fund Balance With Treasury (RC 40)/1 $ 607,555.3
Total $ 607,555.3
Investments (Note 5) (1 of 2) $ 1,179,528.4 3.2 Federal Investments (RC 01)/1 $ 1,179,528.4

Total $ 1,179,528.4
Accounts Receivable (Note 6) (1 of 2) $ 1,465.8

Other Assets (Note 10) (1 of 2) $ 123.4 3.3 Accounts Receivable (RC 22)/1 $ 1,589.2
Total $ 1,589.2
Investments (Note 5) (2 of 2) $ 8,080.6 3.5 Interest Receivable - Investments (RC 02)/1 $ 8,080.6
Total $ 8,080.6
Accounts Receivable (Note 6) (2 of 2) $ 559.4 3.8 Transfers Receivable (RC 27)/1 $ 559.4
Total $ 559.4
Other Assets (Note 10) (2 of 2) $ 983.1

3.10 Advances to Others and Prepayments (RC 23)/1 $ 983.1
Total $ 983.1
Total Federal Assets $ 1,798,296.0 3.14 Total Federal Assets $ 1,798,296.0
Total Assets $ 2,889,950.3 4 Total Assets $ 2,889,950.3

Financial Section
Table 27A. Reclassification of Balance Sheet
As of Sept ember 30
($ in millions)
FY2019 De partme nt of De fe nse SNC Li ne Ite ms Use d to Pre pare FY 2019 Gove rnme nt-wi de Bal ance She e t
Financial St at ement Line Amount Reclassified Financial St at ement Line Amount
5 Li abi l i ti e s
6 Non-Fe de ral
Account s Payable $ 39,682.5 6.1 Account s Payable $ 39,682.5
T ot al $ 39,682.5
Milit ary Ret irement and Ot her Federal $ 2,596,371.8

6.3 Federal Employee and Vet eran Benefit s Payable $ 2,597,130.4
Ot her Liabilit ies (Not e 15 and Not e 17) (1 of 3) $ 758.6
Total $ 2,597,130.4
Environment al and Disposal Liabilit ies (Not e 14) $ 76,124.9 6.4 Environment al and Disposal Liabilit ies $ 76,124.9
T ot al $ 76,124.9
Ot her Liabilit ies (Not e 15 and Not e 17) (2 of 3) $ 3.3 6.5 Benefit s Due and Payable $ 3.3
T ot al $ 3.3
Loan Guarant ee Liabilit y (Not e 7) $ 50.7

6.6 Loan Guarant ee Liabilit ies $ 50.7
T ot al $ 50.7
Ot her Liabilit ies (Not e 15 and Not e 17) (3 of 3) $ 35,996.3

6.9 Ot her Liabilit ies $ 35,996.3
T ot al $ 35,996.3
Total Non-Fe de ral Li abi l i ti e s $ 2,748,988.1 6.10 Total Non-Fe de ral Li abi l i ti e s $ 2,748,988.1
7 Fe de ral
Account s Payable (1 of 2) $ 1,543.7
7.1 Account s Payable (RC 22)/1 $ 2,345.7
Ot her Liabilit ies (Not e 15 & 17) (1 of 6) $ 802.0
T ot al $ 2,345.7
Debt (Not e 12) $ 1,714.1 7.6 Loans Payable (RC 17)/1 $ 1,714.1
T ot al $ 1,714.1
Account s Payable (2 of 2) $ 0.6 7.7 T ransfers Payable (RC 27)/1 $ 0.6

T ot al $ 0.6
Ot her Liabilit ies (Not e 15 & 17) (2 of 6) $ 1,716.6 7.8 Benefit Program Cont ribut ions Payable (RC 21)/1 $ 1,716.6
T ot al $ 1,716.6
Ot her Liabilit ies (Not e 15 & 17) (3 of 6) $ 2,032.3 7.9 Advances from Ot hers and Deferred Credit s (RC 23)/1 $ 2,032.3
T ot al $ 2,032.3
Ot her Liabilit ies (Not e 15 & 17) (4 of 6) $ 3,097.0 Liabilit y t o t he General Fund for Cust odial and Ot her
7.10 $ 3,097.0
T ot al $ 3,097.0 Non-Ent it y Asset s (RC 46)/1
Liabilit y t o agency Ot her T han t he General Fund of

Ot her Liabilit ies (Not e 15 & 17) (5 of 6) $ 2.3 7.11 t he U.S. Government for cust odial and ot her non- $ 2.3
T ot al $ 2.3 ent it y asset s (RC 29)/1
Ot her Liabilit ies (Not e 15 & 17) (6 of 6) $ 126.8 7.12 Ot her Liabilit ies (Wit hout Reciprocals) (RC 29)/1 $ 126.8
T ot al $ 126.8
Total Fe de ral Li abi l i ti e s $ 11,035.4 7.15 Total Fe de ral Li abi l i ti e s $ 11,035.4
Total Li abi l i ti e s $ 2,760,023.5 8 Total Li abi l i ti e s $ 2,760,023.5

9 Ne t Posi ti on:
Cumulat ive Result s of Operat ions - Dedicat ed $ 30,331.1 9.1 Net Posit ion - Funds From Dedicat ed Collect ions $ 30,331.1
T ot al $ 30,331.1
Unexpended Appropriat ions - Ot her Funds $ 545,168.2

Net Posit ion - Funds Ot her T han T hose From
9.2 $ 99,595.7
Cumulat ive Result s of Operat ions - Ot her Funds $ (445,572.5) Dedicat ed Collect ions
T ot al $ 99,595.7
Total Ne t Posi ti on $ 129,926.8 10 Total Ne t Posi ti on $ 129,926.8
Total Li abi l i ti e s and Ne t Posi ti on $ 2,889,950.3 11 Total Li abi l i ti e s and Ne t Posi ti on $ 2,889,950.3

Financial Section
Table 27B. Reclassification of Statement of Net Cost
As of September 30
($ in millions)
Line Items Used to Prepare FY 2019
FY2019 Department of Defense S NC
Government-wide S NC
1 Gross Costs
Gross Cost $ 780,402.3 2 Non-Federal Gross Cost $ 780,402.3
Total $ 780,402.3
Losses/(Gains) from Actuarial Assumption

Gains/Losses from Changes in
Changes $ 138,808.5 4 $ 138,808.5
Actuarial Assumptions
Total $ 138,808.5
Total Non-Federal Gross Cost $ 919,210.8 6 Total Non-Federal Gross Cost $ 919,210.8
7 Federal Gross Cost

Gross Costs (1 of 6) $ 15,598.7 7.1 Benefit program costs (RC 26)/2 $ 15,598.7
Total $ 15,598.7
Gross Costs (2 of 6) $ 5,609.8 7.2 Imputed Costs (RC25)/2 $ 5,609.8

Total $ 5,609.8
Gross Costs (3 of 6) $ 15,532.3 7.3 Buy/Sell Cost (RC24)/2 $ 15,532.3

Total $ 15,532.3
Gross Costs (4 of 6) $ 262.8

7.4 Purchase of assets (RC 24)/2 $ 262.8
Total $ 262.8
Gross Costs (5 of 6) $ 67.2 Borrowing and other interest expense

7.6 $ 67.2
Total $ 67.2 (RC05)/2
Gross Costs (6 of 6) $ 5,126.4 Other expenses (without reciprocals)

7.8 $ 5,126.4
Total $ 5,126.4 (RC 29)
Total Federal Gross Cost $ 42,197.2 8 Total Federal Gross Cost $ 42,197.2
Department Total Gross Cost $ 961,408.0 9 Department Total Gross Cost $ 961,408.0
10 Earned Revenue
Less: Earned Revenue $ (44,190.0) 11 Non-federal earned revenue $ (44,190.0)
Total $ (44,190.0)
12 Federal Earned Revenue

Less: Earned Revenue (1 of 4) $ (229.6) Benefit Program Revenue (exchange)
12.1 $ (229.6)
Total $ (229.6) (RC26)/2
Less: Earned Revenue (2 of 4) $ (9,452.3) Buy/Sell Revenue (exchange)

12.2 $ (9,452.3)
Total $ (9,452.3) (RC24)/2
Gross Costs $ (262.8) 12.3 Purchase of assets offset (RC 24)/2 $ (262.8)
$ (262.8)
Federal securities interest revenue

Less: Earned Revenue (3 of 4) $ (36,626.3)
12.4 including associated gains and losses $ (36,626.3)
(exchange) (RC 03)/2
Total $ (36,626.3)
Less: Earned Revenue (4 of 4) $ (4.0) Borrowing and other interest revenue

12.5 $ (4.0)
Total $ (4.0) (exchange) (RC 05)/2
Total Federal Earned Revenue $ (46,575.0) 13 Total Federal Earned Revenue $ (46,575.0)
Department Total Earned Revenue $ (90,765.0) 14 Department Total Earned Revenue $ (90,765.0)
Net Cost of Operations $ 870,643.0 15 Net Cost of Operations $ 870,643.0

Financial Section
Table 27C. Reclassification of Statement of Changes in Net Position

As of Sep tember 30
($ in millions)
FY2019 Department of Defense S CNP Line Items Used to Prepare FY 2019 Government-wide S CNP
Unexp ended Ap p rop riations, Beginning $ 529,803.7
Cumulative Results of Op erations, Beginning $ (344,220.1) 1 Net p osition, beginning of p eriod $ 185,583.6
Total $ 185,583.6
2 Non-Federal Prior-Period Adjustments
Cumulative Results of Op erations ,Changes in accounting
p rincip les (+/-) (1 of 2) $ 5,727.6 2.1 Changes in Accounting Princip les $ 5,727.6
Total $ 5,727.6
Cumulative Results of Op erations, Corrections of errors

Corrections of Errors - Years Preceding the Prior
(+/-) $ 7,250.4 2.3 $ 7,250.4
Year - Non federal
Total $ 7,250.4
3 Federal Prior Period Adjustments

Cumulative Results of Op erations ,Changes in accounting
p rincip les (+/-) (2 of 2) $ (1,449.8) 3.1 Changes in Accounting Princip les-Federal (RC 29)/1 $ (1,449.8)
Total $ (1,449.8)
Net position, beginning of period - adjusted $ 197,111.8 4 Net position, beginning of period - adjusted $ 197,111.8
5 Non-Federal Nonexchange Revenue:

Nonexchange revenue $ 2,075.2
Donations and Forfeitures of Cash and Cash Equivalents $ 137.5

5.7 Other Taxes and Receip ts $ 16,469.5
Other budgetary financing sources $ (2,521.5)
Other (+/-) $ 16,778.3
Total $ 16,469.5
Total Non-Federal Nonexchange Revenue $ 16,469.5 5.9 Total Non-Federal Nonexchange Revenue $ 16,469.5
6 Federal Nonexchange Revenue:

Nonexchange revenue (1 of 3) $ 231.7 Federal Securities Interest Revenue Including
6.1 $ 231.7
Total $ 231.7 Associated Gains and Losses (Non-exchange) (RC
Nonexchange revenue (2 of 3) $ 117.0 6.4 Other Taxes and Receip ts (RC 45)/1 $ 117.0
Total $ 117.0
Collections transferred into a TAS Other Than the
Nonexchange revenue (3 of 3) $ 1,573.7
6.6 General Fund of the U.S. Government - $ 1,573.7
Total $ 1,573.7 Nonexchange (RC 15)
Other (+/-) $ (2.3) Accrual of Collections Yet to be Transferred to a

6.7 TAS Other Than the General Fund of the U.S. $ (2.3)
Total $ (2.3) Government - Nonexchange (RC 16)
Total Federal Nonexchange Revenue $ 1,920.1 6.9 Total Federal Nonexchange Revenue $ 1,920.1

Financial Section
Table 27C. Reclassification of Statement of Changes in Net Position
As of September 30
($ in millions)
FY2019 Department of Defense S CNP Line Items Used to Prepare FY 2019 Government-wide S CNP
7 Budgetary Financing S ources:
Appropriations received $ 802,827.9
Appropriations Received As Adjusted (Rescissions
Other adjustments (+/-) $ (22,533.9) 7.1 $ 780,294.0
and Other Adjustments) (RC 41)/1
Total $ 780,294.0
Appropriations used (1 of 2) $ (764,988.7) 7.2 Appropriations Used (RC 39) $ (764,988.7)

Total $ (764,988.7)
Appropriations used (2 of 2) $ 764,988.7 7.3 Appropriations expended (RC 38)/1 $ 764,988.7

Total $ 764,988.7
Transfers-in/out without reimbursement (1 of 3) $ 378.1

Non-expenditure Transfers-In of Unexpended
Appropriations transferred-in/out (1 of 2) $ 290.4 7.6 $ 668.5
Appropriations and Financing Sources (RC 08)/1
Total $ 668.5
Transfers-in/out without reimbursement (2 of 3) $ (42.9)

Non-expenditure Transfers-Out of Unexpended
Appropriations transferred-in/out (2 of 2) $ (231.2) 7.7 $ (274.1)
Appropriations and Financing Sources (RC 08)/1
Total $ (274.1)
Transfers-in/out without reimbursement (3 of 3) $ (197.7) Expenditure transfers-out of financing sources (RC

7.9 $ (197.7)
Total $ (197.7) 09)/1
Other adjustments (+/-) $ (210.8) Revenue and Other Financing Sources -

7.12 $ (210.8)
Total $ (210.8) Cancellations (RC 36)
Total budgetary financing sources $ 780,279.9 7.20 Total budgetary financing sources $ 780,279.9
8 Other Financing S ources:

Transfers-in/out without reimbursement (+/-) (1 of 2) $ 173.3
8.1 Transfers-In Without Reimbursement (RC 18)/1 $ 173.3
Total $ 173.3
Transfers-in/out without reimbursement (+/-) (2 of 2) $ (126.9) 8.2 Transfers-Out Without Reimbursement (RC 18)/1 $ (126.9)
Total $ (126.9)
Imputed financing from costs absorbed by others $ 5,609.8 8.3 Imputed Financing Sources (RC 25)/1 $ 5,609.8
Total $ 5,609.8
Other (+/-) (1 of 2) $ (821.8) Non-Entity Collections Transferred to the General

8.4 $ (821.8)
Total $ (821.8) Fund (RC 44)
Other (+/-) (2 of 2) $ (45.9) Accrual for Non-Entity Amounts To Be Collected

8.5 and Transferred to the General Fund of the U.S. $ (45.9)
Total $ (45.9) Government (RC 48)
Total Other Financing S ources $ 4,788.5 8.11 Total Other Financing S ources $ 4,788.5
Net Cost of Operations (+/-) $ (870,643.0) 9 Net Cost of Operations (+/-) $ (870,643.0)
Ending Net Position Balance $ 129,926.8 10 Ending Net Position Balance $ 129,926.8

Financial Section
Note 28. Restatements

The Department restated its financial statements as of September 30, 2018 to correct errors in
liabilities, Cumulative Results of Operations – Dedicated Collections and Cumulative Results of Operations
– Other Funds, net cost, earned revenue and budgetary resources. The restatement brought offline
adjustments from published component Agency Financial Reports into the Department reporting system.
The following notes were restated: Note 3, Fund Balance with Treasury; Note 11, Liabilities Not
Covered by Budgetary Resources; Note 15, Other Liabilities; Note 19, General Disclosures Related to the
Statement of Net Cost; Note 20, Disclosures Related to the Statement of Changes in Net Position; Note 21,
Disclosures Related to the Statement of Budgetary Resources.
Table 28A. Effect on FY 2019 Beginning Cumulative Results of Operations and Unexpended Appropriations
For the years ended September 30
($ in millions)
FY 2019 Net Position 2019
Unexpended Appropriations - Other Funds $ 57.1

Cumulative Results of Operations - Dedicated Collections 10,955.6
Cumulative Results of Operations - Other Funds (10,955.6)
Total Net Position $ 57.1
Table 28B. Effect on FY 2018 Comparative Balances

For the y ears ended Sep tember 30
($ in millions)
FY 2018 Balance Sheet
Fund Balance With Treasury (net effect of restatements) $ -
Other Liabilties $ (57.1)

Total Other Liabilities $ (57.1)
Unexp ended Ap p rop riations - Other Funds $ 57.1

Cumulative Results of Op erations - Dedicated Collections 10,955.6
Cumulative Results of Op erations - Other Funds (10,955.6)
Total Net Position $ 57.1
FY 2018 Statement of Net Cost
Gross Costs $ 36.8

Less Earned Revenue (27.3)
Net Cost of Operations $ 9.5
FY 2018 Statement of Changes in Net Position
Beginning Balance $ 66.6

Ap p rop riations Used (9.5)
Total Unexpended Appropriations $ 57.1
Ap p rop riations Used $ 9.5

Nonexchange Revenue 1,513.2
Transfers-in/out without reimbursement (1,513.2)
Total Financing Sources $ 9.5
(Includes Funds from Dedicated Collections)
Net Cost of Op erations $ 9.5
Net Position $ 57.1
FY 2018 Statement of Changes in Net Position
Exemp t from ap p ortionment, unexp ired accounts $ 921.6

Unap p ortioned, unexp ired accounts $ (921.6)

Financial Section
REQUIRED SUPPLEMENTARY STEWARDSHIP INFORMATION

The Department makes substantial investments for the benefit of the Nation. Stewardship
Investments are treated as expenses, when incurred, in calculating net costs. These investments are reported
as Required Supplementary Stewardship Information to highlight the extent of the investments that are
made for long-term benefit to the public.
The Department’s stewardship investments are measured by expensed for (1) federally-financed,
but not federally owned physical property (Non-Federal Physical Property) and (2) federally-financed
Research and Development (R&D).
NON-FEDERAL PHYSICAL PROPERTY

Table RSSI-1. Non-Federal Physical Property Investments
As of September 30
2019 2018 2017 2016 2015
($ in millions)
Transferred Assets
National Defense M ission Related $ 1,119.5 $ 1,162.4 $ 1,011.4 $ 1,265.2 $ 1,307.2
Funded Assets
National Defense M ission Related 41.1 16.4 15.5 17.2 12.7
Total Non-Federal Phsical Property

Investments $ 1,160.6 $ 1,178.8 $ 1,026.9 $ 1,282.4 $ 1,319.9
The Non-Federal Physical Property investments support the purchase, construction, or major
renovation of physical property owned by state and local governments. In addition, Non-Federal Physical
Property investments include federally-owned physical property transferred to state and local governments.
The Department participates in cost-sharing agreements with non-federal sponsors which are governed
under numerous Water Resources Development Acts. The Department’s transferred assets include
expenditures supporting the design, build, and construction services/management for the missions of
commercial navigation, flood/storm damage reduction, hydropower, regulatory, environmental, recreation
and water supply.

Financial Section
INVESTMENTS IN RESEARCH AND DEVELOPMENT

Investment values included in this report are based on R&D expenditures. The R&D programs are
classified in the following categories: Basic Research, Applied Research, and Development. The amounts
reported in Table RSSI-2 present the expenditures from FY 2015 to FY 2019 for all DoD Components.
Table RSSI-2. Investments in Research and Developments
As of September 30
2019 2018 2017 2016 2015
($ in millions)
Basic Research $ 1,510.8 $ 2,321.1 $ 1,960.3 $ 2,106.8 $ 1,958.0

Applied Research 6,069.2 6,393.6 6,988.6 6,307.5 5,744.7
Development
Advanced Technology Development 5,677.9 5,862.9 5,736.5 5,525.8 5,007.6
Advanced Component Development
and Prototypes 16,405.2 16,243.7 13,965.7 12,517.9 11,954.9
System Development and Demonstration 9,328.2 13,241.3 11,487.3 11,037.7 10,733.8
Research, Development, Test and
Evaluation M anagement Support 6,544.4 6,882.3 5,189.3 5,335.5 5,163.3
Operational Systems Development 23,954.6 24,776.1 21,611.1 20,428.8 20,441.9
S ubtotal $ 69,490.3 $ 75,721.0 $ 66,938.8 $ 63,260.0 $ 61,004.2
Department of the Navy - FY 2019 in total* 18,519.0 N/A N/A N/A N/A
Total $ 88,009.3 $ 75,721.0 $ 66,938.8 $ 63,260.0 $ 61,004.2
* The Department of the Navy's (DON) investments in R&D for FY 2019 are presented separately. A mid-year data
conversion from a legacy accounting system to its Enterprise Resource Planning System did not permit the classification of
the DON's data into the proper categories for FY 2019 only. The DON's investments are consolidated with the other DoD
Components for the other fiscal years presented.
Applied Research is the systematic study to gain knowledge or understanding necessary for
determining the means by which a recognized and specific need may be met. It is the practical application
of such knowledge or understanding for the purpose of meeting a recognized need. This research points
toward specific military needs with a view toward developing and evaluating the feasibility and
practicability of proposed solutions and determining their parameters. Major outputs are scientific studies,
investigations, research papers, hardware components, software codes, or limited construction of a weapon
system component, to include non-system-specific development efforts.
Development takes what has been discovered or learned from basic and applied research and uses
it to establish technological feasibility, assessment of operability, and production capability. Development
consists of the five stages:
• Advanced Technology Development is the systematic use of the knowledge or understanding

gained from research and directed toward proof of concept and feasibility rather than directed
toward the development of hardware for service use. It employs demonstration activities intended
to test a technology or method.
• Advanced Component Development and Prototypes evaluates integrated technologies in an
operating environment as realistic as possible to assess the performance or cost reduction potential
of advanced technology. Programs in this phase are generally system-specific. Major outputs of
Advanced Component Development and Prototypes are hardware and software components and
complete weapon systems ready for operational and developmental testing and field use.

Financial Section
• System Development and Demonstration concludes the program or project and prepares it for
production. It consists primarily of preproduction efforts, such as logistics and repair studies.
Major outputs are weapons systems finalized for complete operational and developmental testing.
• Research, Development, Test, and Evaluation Management Support bolsters installations and
operations for general research and development use. This category includes costs associated with
test ranges, military construction maintenance support for laboratories, operation and maintenance
of test aircraft and ships, and studies and analyses furthering the Research and Development
program.
• Operational Systems Development funding finances projects, programs, or upgrades in engineering
and manufacturing development stages which have received approval for production, including
production funds that have been budgeted in subsequent fiscal years.

Financial Section
REQUIRED SUPPLEMENTARY INFORMATION

This section provides the deferred maintenance and repairs disclosures, required in accordance with
SFFAS 42, and the Combining Statement of Budgetary Resources, which disaggregates the information
aggregated for presentation on the DoD Agencywide Combined Statement of Budgetary Resources.
Real Property Deferred Maintenance and Repairs
Maintenance and repairs are activities directed toward keeping real property assets in an acceptable
condition. Activities include preventive maintenance; replacement of parts, systems, or components; and
other activities needed to preserve or maintain the asset. Maintenance and repairs, as distinguished from
capital improvements, exclude activities directed towards expanding the capacity of an asset or otherwise
upgrading it to serve needs different from, or significantly greater than, its current use.
Deferred Maintenance and Repairs (DM&R) are maintenance and repairs that were not performed
when needed or were scheduled to be and are delayed for a future period. DM&R are identified through
condition assessment surveys in accordance with the September 10, 2013 Under Secretary of Defense for
Acquisition Technology and Logistics policy memorandum,
Standardizing Facility Condition Assessments. The real property record is the data source for obtaining the
reported total deferred maintenance and repairs. Facility Categories are:
• Category 1: Buildings, Structures, and Linear Structures that are enduring and required to support
an ongoing mission, including multi-use Heritage Assets;
• Category 2: Buildings, Structures, and Linear Structures that are Heritage Assets; and
• Category 3: Buildings, Structures, and Linear Structures that are excess to requirements or planned
for replacement or disposal, including multi-use Heritage Assets.
Table RSI-1. Real Property Deferred Maintenance and Repairs (excluding Military Family Housing)
($ in millions) Required Work (Deferred
Plant Replacement Value Percentage
M aintenance & Repair)
Property Type
Category 1 $ 1,153,937.2 $ 101,584.8 9%
Category 2 81,209.7 11,332.8 14%
Category 3 38,216.2 6,074.0 16%
Total $ 1,273,363.1 $ 118,991.6 9%
Property Type
Category 1 $ 1,122,340.6 $ 95,815.9 9%
Category 2 94,998.7 10,903.7 11%
Category 3 18,301.0 4,097.0 22%
Total $ 1,235,640.3 $ 110,816.6 9%

Financial Section
Table RSI-2. Real Property Deferred Maintenance and Repairs (Military Family Housing only)
Property Type
Category 1 $ 24,285.0 $ 3,197.0 13%
Category 2 595.0 162.0 27%
Category 3 410.0 105.0 26%
Total $ 25,290.0 $ 3,464.0 14%
Property Type
Category 1 $ 24,560.0 $ 1,451.0 6%
Category 2 531.0 123.0 23%
Category 3 383.0 111.0 29%
Total $ 25,474.0 $ 1,685.0 7%
As of the end of FY 2019, the Department estimates facility maintenance cost of more than
$122.5 billion for facilities with replacement cost of $1.3 trillion. The totals include $7.9 billion in civil
works related maintenance needs under the USACE with replacement cost of more than $267.1 billion.
Maintenance and Repair Policies
The Department is migrating to the Sustainment Management System (SMS), to perform a cyclical
assessment of real property facilities and assign a facility condition index (FCI), which considers an asset’s
key life-cycle attributes such as age and material.
Maintenance and Repair Prioritization and Acceptable Condition Standards
The Department considers mission, health and safety, and quality of life when assigning priority to
maintenance needs and assessing whether a facility is in acceptable condition. Generally, an asset is
considered acceptable when it is in good condition with an assigned FCI of 90 percent or above.
Deferred Maintenance and Repair Exclusions
The deferred maintenance and repair information presented relates to all DoD facilities and is not
restricted to capitalized assets.

Financial Section
EQUIPMENT DEFERRED MAINTENANCE AND REPAIRS

Table RSI-3. Equipment Deferred Maintenance and Repairs
($ in millions)
M ajor Categories
Aircraft $ 986.3 $ 583.7
Automotive Equipment 19.3 47.3
Combat Vehicles 284.6 372.6
Construction Equipment 11.5 8.7
Electronics and Communications Systems 122.9 113.9
M issiles 52.1 123.9
Ships 525.6 221.2
Ordnance Weapons and M unitions 88.2 65.8
Other Items Not Identified Above 75.3 74.3
Total $ 2,165.8 $ 1,611.4
Maintenance and Repair Policies

Depot maintenance requirements for equipment are developed during the annual budget process
and updated based on work completion, shifts in priorities, work stoppages, or additional requirements.
Not all unfunded depot maintenance requirements are deferred. In support of the Planning, Programming,
Budgeting, and Execution (PPBE) process, each Military Service has fairly detailed and methodical
processes for determining their depot maintenance requirements. During this process, and as more
information becomes available, depot requirements are adjusted and refined, and the amount of funding is
determined, based on Military Service priorities and assessment of risk.
Ultimately, Military Service depot maintenance requirements and funding amounts are included in
the baseline budget. In the year of execution, the Military Services may take steps to either mitigate, or
exacerbate the levels of deferred maintenance depending upon the availability of resources and Military
Service priorities. The Military Services may take steps to mitigate deferred maintenance through the
reprogramming of resources from cancelled programs, or from those of a lesser priority, or utilize
supplemental funding. The Military Services may also cancel requirements, direct maintenance be
performed at the field-level, or even reduce force structure and reprogram those operation and maintenance.
Maintenance and Repair Prioritization and Acceptable Condition Standards
The Department prioritizes maintenance and repair requirements based on mission and health and
safety. In addition, emerging requirements and real world events drive review and reprioritization of
maintenance and repair requirements. The Department employs risk-based methodologies in determining
acceptable levels of equipment operational risk.
Deferred Maintenance and Repair Exclusions
The deferred maintenance and repair information presented relates to all DoD equipment and is not
restricted to capitalized assets.
Significant Changes in Deferred Maintenance and Repair
The Department’s deferred maintenance and repair work for equipment, platforms, and weapon
systems increased by $554.4 million during FY 2019. The increase was primarily driven by parts
constraints, unplanned in-service repair, and increased unit costs related to aircraft as well as workload
growth related to ships.

Financial Section
Combining Statement of Budgetary Resources

Table RSI-4. Combining Statement of Budgetary Resources (Budgetary)
($ in millions)
Research, Family
Military Operations,
Military Development, Housing &
Procurement Retirement Civil Works Readiness & Combined
Personnel T est & Military
Benefits Support
Evaluation Contstuction
Budge tary Re source s

Unobligated Balance from Prior Year Budget
Authority, Net (Discretionary and Mandatory) $ 8,045.2 $ 82,446.8 $ 26,936.2 $ 18,375.1 $ - $ 31,327.1 $ 59,637.7 $ 226,768.1
Appropriations (Discretionary and Mandatory) 149,383.7 146,873.0 97,348.1 11,354.1 71,409.9 10,954.2 387,055.1 874,378.1
Borrowing Authority (Discretionary and Mandatory) - - - - - - - -
Contract Authority (Discretionary and Mandatory) - - - - - - 86,854.4 86,854.4
Spending Authority from Offsetting Collections
(Discretionary and Mandatory) 1,604.0 2,859.9 12,491.8 6,463.2 - 14,792.1 74,754.6 112,965.6
Total Budge tary Re source s $ 159,032.9 $ 232,179.7 $ 136,776.1 $ 36,192.4 $ 71,409.9 $ 57,073.4 $ 608,301.8 $ 1,300,966.2
Status of Budge tary Re source s

New Obligations and Upward Adjustments (T otal) $ 155,371.6 $ 159,675.6 $ 117,159.1 $ 17,043.3 $ 71,409.9 $ 24,400.7 $ 570,880.0 $ 1,115,940.2
Apportioned, Unexpired Accounts 428.8 69,888.6 17,815.5 18,108.2 - 32,687.8 18,225.4 157,154.3
Exempt from Apportionment, Unexpired
Accounts - - - - - 43.0 3,997.4 4,040.4
Unapportioned, Unexpired Accounts - 0.4 1.9 0.4 - (64.6) 1,190.1 1,128.2
Unexpired Unobligated Balance, End of Year 428.8 69,889.0 17,817.4 18,108.6 - 32,666.2 23,412.9 162,322.9
Expired Unobligated Balance, End of Year 3,232.5 2,615.1 1,799.6 1,040.5 - 6.5 14,008.9 22,703.1
Unobligated Balance, End of Year (T otal) 3,661.3 72,504.1 19,617.0 19,149.1 - 32,672.7 37,421.8 185,026.0
O utlays, Ne t
Outlays, Net (T otal) (Discretionary and Mandatory) $ 148,360.5 $ 124,324.4 $ 90,659.1 $ 7,024.7 $ 71,160.1 $ 7,259.3 $ 379,845.2 $ 828,633.3
Distributed Offsetting Receipts (-) - - - - (104,217.7) (815.0) (2,377.4) (107,410.1)
Age ncy O utlays, Ne t (Discre tionary and Mandatory) $ 148,360.5 $ 124,324.4 $ 90,659.1 $ 7,024.7 $ (33,057.6) $ 6,444.3 $ 377,467.8 $ 721,223.2

Financial Section
Table RSI-4. Combining Statement of Budgetary Resources (Budgetary)

($ in millions)
Research, Family
Military Operations,
Military Development, Housing &
Procurement Retirement Civil Works Readiness & Combined
Personnel T est & Military
Benefits Support
Evaluation Contstuction
Budge tary Re source s

Authority, Net (Discretionary and Mandatory) $ 6,518.2 $ 66,143.6 $ 20,602.4 $ 14,586.2 $ - $ 11,986.6 $ 61,171.2 $ 181,008.2
Appropriations (Discretionary and Mandatory) 144,017.0 147,080.9 93,807.9 10,241.0 69,065.7 25,087.7 374,282.8 863,583.0
Borrowing Authority (Discretionary and Mandatory) - - - - - - - -
Contract Authority (Discretionary and Mandatory) - - - - - - 88,428.1 88,428.1
(Discretionary and Mandatory) 1,385.9 3,771.0 11,324.3 6,201.2 - 20,516.2 76,215.3 119,413.9
Me morandum (Non-Add) Entrie s

Net Adjustments to Unobligated Balances Brought
Forward, Oct 1 $ 2,777.7 $ 5,318.7 $ 1,427.8 $ 245.9 $ - $ 442.5 $ 12,087.7 $ 22,300.3
Status of Budge tary Re source s

New Obligations and Upward Adjustments (T otal) $ 148,779.7 $ 140,398.4 $ 101,647.5 $ 13,553.1 $ 69,065.7 $ 26,937.2 $ 553,827.7 $ 1,054,209.3
Apportioned, Unexpired Accounts 228.8 73,423.7 22,497.8 16,427.8 - 30,618.9 22,505.9 165,702.9
Accounts - - - - - 27.3 3,769.9 3,797.2
Unapportioned, Unexpired Accounts - 14.9 11.3 0.9 - 984.5 1,011.6
Unexpired Unobligated Balance, End of Year 228.8 73,438.6 22,509.1 16,428.7 - 30,646.2 27,260.3 170,511.7
Expired Unobligated Balance, End of Year 2,912.6 3,158.5 1,578.0 1,046.6 - 7.1 19,009.4 27,712.2
Unobligated Balance, End of Year (T otal) 3,141.4 76,597.1 24,087.1 17,475.3 - 30,653.3 46,269.7 198,223.9
O utlays, Ne t
Outlays, Net (T otal) (Discretionary and Mandatory) $ 138,990.3 $ 111,904.0 $ 78,315.2 $ 6,338.1 $ 64,541.9 $ 5,932.9 $ 357,193.6 $ 763,216.0
Distributed Offsetting Receipts (-) - - (7.8) - (98,904.2) (860.2) (2,200.9) (101,973.1)
Age ncy O utlays, Ne t (Discre tionary and Mandatory) $ 138,990.3 $ 111,904.0 $ 78,307.4 $ 6,338.1 $ (34,362.3) $ 5,072.7 $ 354,992.7 $ 661,242.9

Financial Section
Table RSI-5. Combining Statement of Budgetary Resources (Non-Budgetary Credit Reform Financing Account)
For the year ended September 30 2019 2018
($ in millions)
Operations, Operations,
Readiness & Combined Readiness & Combined
Support Support
Budgetary Resources
Authority, Net (Discretionary and M andatory) $ 69.0 $ 69.0 $ 85.1 $ 85.1
Appropriations (Discretionary and M andatory) - - - -
Borrowing Authority (Discretionary and M andatory) 63.3 63.3 55.4 55.4
Contract Authority (Discretionary and M andatory) - - - -
(Discretionary and M andatory) 56.8 56.8 61.6 61.6
Total Budgetary Resources 189.1 189.1 202.1 202.1
Memorandum (Non-Add) Entries

Net Adjustments to Unobligated Balances Brought
Forward, Oct 1 - - - -
S tatus of Budgetary Resources

New Obligations and Upward Adjustments (Total) 129.2 129.2 133.1 133.1
Apportioned, Unexpired Accounts - - - -
Accounts - - - -
Unapportioned, Unexpired Accounts 59.9 59.9 69.0 69.0
Unexpired Unobligated Balance, End of Year 59.9 59.9 69.0 69.0
Expired Unobligated Balance, End of Year - - - -
Unobligated Balance, End of Year (Total) 59.9 59.9 69.0 69.0
Total Budgetary Resources 189.1 189.1 202.1 202.1
Outlays, Net
Outlays, Net (Total) (Discretionary and M andatory) 37.6 37.6 71.2 71.2
Distributed Offsetting Receipts (-) - - - -
Agency Outlays, Net (Discretionary and Mandatory) $ 37.6 $ 37.6 $ 71.2 $ 71.2

FY 2019
Other Information
Management Challenges 175

Summary of Financial Statement
Audit and Management Assurances 180
Payment Integrity 200
Fraud Reduction Report 237
Reduce the Footprint 239
Civil Monetary Penalty Adjustment
for Inflation 240
2019 DoD Warrior Games’ Senior Athlete Learns New Meaning of "Still in the Fight”
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Other Information
Management Challenges
In accordance with the Reports Consolidation Act of 2000, the DoD Inspector General (DoD IG)
prepares an annual statement that summarizes what the DoD IG considers to be the most serious
management and performance challenges facing the Department. This statement is included in a larger
report by the DoD IG that provides additional background and descriptive information about each challenge
and provides an assessment of the Department’s progress in addressing the challenges.
The DoD Office of the Inspector General uses the DoD IG report as a research and planning tool
to identify areas of risk in DoD operations. As the report is forward-looking and outlines the most
significant management and performance challenges facing the Department now and in the future, it is
labelled as FY 2020 rather than FY 2019 to reflect its forward-looking orientation.
The DoD IG’s statement and executive summary of the most serious management and performance
challenges facing the Department are included on the following pages. The complete DoD IG report on
FY 2020 Top DoD Management Challenges as well as reports from previous years are available at the
DoD IG website.

Other Information

Other Information

Other Information

Other Information

Other Information
Summary of Financial Statement Audit and Management Assurances

Department of Defense (DoD or the Department) management has a fundamental responsibility to
develop and maintain effective internal controls to ensure that its programs operate, and federal resources
are used, efficiently and effectively to achieve the DoD mission. As discussed in Management’s Discussion
and Analysis, managers throughout the Department are accountable for ensuring effective internal controls
in their areas of responsibility. All DoD Components are required to establish and assess internal controls
over financial reporting, mission-essential operations, and financial management systems.
Management-identified weaknesses are determined by assessing internal controls, as required by
the Federal Managers’ Financial Integrity Act of 1982 (FMFIA), the Federal Financial Management
Improvement Act of 1996 (FFMIA), and Office of Management and Budget (OMB) Circular No. A-123,
and fall into one of the following categories:
• FMFIA Section 2, Effectiveness of Internal Control over Financial Reporting;

• FMFIA Section 2, Effectiveness of Internal Control over Operations; or
• FMFIA Section 4, Compliance with Federal Financial Management Systems Requirements /
FFMIA Section 803(a), Implementation of Federal Financial Management Improvements.
U.S. Marine Corps Sgt. Jade Woodend, assigned to Battalion Landing Team 3/1, fires a FIM-92 Stinger antiaircraft missile from the flight deck of the Wasp-class
amphibious assault ship USS Essex (LHD 2) during a regularly scheduled deployment of Essex Amphibious Ready Group (ARG) and 13th Marine Expeditionary
Unit (MEU) in the Arabian Sea Oct. 7, 2018.
U.S. Navy photo by Mass Communication Specialist 3rd Class Jenna Dobson

Other Information
Summary of Financial Statement Audit

Exhibit 1 lists the 25 areas of material weaknesses in the Department’s financial statement
reporting as identified by the DoD Inspector General (DoD IG) in the Independent Auditor’s Report. The
material weakness areas identified by DoD IG in the Independent Auditor’s Report are consistent with those
identified by DoD management (which are primarily identified using the assessable unit categories as
defined by the DoD Enterprise Risk Management and Internal Control Program) with five exceptions: Joint
Strike Fighter Program, Military Housing Privatization Initiative (MHPI), Service Providers, DoD-Wide
Oversight and Monitoring, and Component-Level Oversight and Monitoring. The Department concurs
with DoD IG’s conclusions and will focus on implementing the necessary corrective actions to address each
of the material weaknesses noted by the DoD IG in the Independent Auditor’s Report.
Joint Strike Fighter Program
The Department concurs with DoD IG’s conclusions and will initiate further efforts to substantiate
the existence, completeness, and valuation of the Joint Strike Fighter program’s government property. The
independent auditors of the relevant Military Services recognized improved DoD asset valuation efforts,
but additional effort is required to gain full accountability and proper financial reporting of the Joint Strike
Fighter program’s assets and activities.
Military Housing Privatization Initiative (MHPI)
The Department concurs with DoD IG’s conclusions and will initiate further efforts to properly
record and disclose the financial activities of the Military Housing Privatization Initiative program in
accordance with the requirements of Accounting Standards Codification (ASC) 302, Statements of Federal
Financial Accounting Standards (SFFAS) 49, and Office of Management and Budget (OMB)
Circular No A-136.
Service Providers
The Department concurs with DoD IG’s conclusions and will initiate further efforts to design and
implement reliable controls at DoD service providers to provide greater assurance to their DoD Component
and Federal Agency customers. During FY 2019, the Department continued to assess DoD service provider
controls through the use of Statement on Standards for Attestation Engagements (SSAE) 18 examinations.
Through these and other related efforts, the Department successfully closed approximately 65% of notices
of findings and recommendations (NFRs) identified during the FY 2018 examinations that related to DoD
service provider controls.
DoD-Wide Oversight and Monitoring & Component-Level Oversight and Monitoring
The Department concurs with DoD IG’s conclusions and will initiate further efforts to strengthen
controls to oversee and monitor DoD Agency-Wide and Component-level financial statements. During
FY 2019, the Department made progress toward the remediation of the Oversight and Monitoring material
weakness identified by the DoD IG in FY 2018 related to the development of enterprise-wide corrective
actions through the implementation and use of a Department-wide NFR database. As of
September 30, 2019, approximately 93% of the NFRs related to material weakness assessable unit areas
have corrective action plans entered into the NFR database.

Other Information
Exhibit 1. Summary of Financial Statement Audit

Audit Opinion: Disclaimer
Restatement: No - - - - -
Beginning
Material Weakness New Resolved Consolidated Ending Balance
Balance
Financial Management Systems and Information
1 - - - 1
Technology1
Universe of Transactions2 1 - - - 1
Fund Balance with Treasury 1 - - - 1

- -
Suspense Accounts3 0 1 1
Inventory and Related Property 1 - - - 1

- - -
Operating Materials & Supplies 1 1
General Property, Plant, and Equipment4 1 - - - 1
- -
Real Property4 0 1 1
Government Property in Possession of

1 - - - 1
Contractors5
- -
Joint Strike Fighter Program 0 1 1
Military Housing Privatization Initiative (MHPI) 0 1 - - 1

- - -
Accounts Payable3 1 1
Environmental and Disposal Liabilities 1 - - - 1

- - -
Legal Contingencies6 1 1
6
Beginning Balances 1 - - - 1
- - -
Unsupported Accounting Adjustments7, 8 1 1
Intradepartmental Eliminations and

1 - - - 1
Intragovernmental Transactions3
- -
Gross Costs6, 9 0 1 1
Earned Revenue6, 9 0 1 - - 1
Reconciliation of Net Cost of Operations to - - -
1 1
Outlays6
Budgetary Resources10 1 - - - 1
- -
Service Providers 0 1 1
Entity-Level Controls 1 - - - 1
- -
DoD-Wide Oversight and Monitoring11 0 1 1
Component-Level Oversight and Monitoring11 0 1 - - 1

- -
Financial Statement Compilation12 1 (1) 0
Accounts Receivable13 1 - (1) - 0
9 - -
Statement of Net Cost 1 (1) 0
Oversight and Monitoring11 1 - - (1) 0
Total Material Weaknesses 20 9 (1) (3) 25

Other Information
1 The Financial Management Systems and Information Technology material weakness identified by the DoD IG is included within
the Federal Financial Management Systems Requirements material weakness identified by DoD management in Exhibit 6.
2The Universe of Transactions material weakness identified by the DoD IG is included within the Federal Financial Management
Systems Requirements material weakness identified by DoD management in Exhibit 6.
3The Suspense Accounts, Accounts Payable, and Intradepartmental Eliminations and Intragovernmental Transactions material
weaknesses identified by the DoD IG are included within the Health Care Liabilities, Military Pay, Contract/Vendor Pay,
Reimbursable Work Orders, and Fund Balance with Treasury material weaknesses identified by DoD management in Exhibit 2.
4The General Property, Plant, and Equipment and Real Property material weaknesses identified by the DoD IG includes the
Equipment Assets and Real Property Assets material weaknesses identified by DoD management in Exhibit 2.
5 The Government Property in Possession of Contractors material weakness identified by the DoD IG is included within the
Accountability and Management of Property Furnished to Contractors for the Performance of a Contract material weakness
identified by DoD management in Exhibit 2.
6 The Legal Contingencies, Beginning Balances, Gross Costs, Earned Revenue, and Reconciliation of Net Cost of Operations to
Outlays material weaknesses identified by the DoD IG are included within the Financial Reporting Compilation material weakness
identified by DoD management in Exhibit 2.
7The Unsupported Accounting Adjustments material weakness identified by the DoD IG was titled Journal Vouchers by the
DoD IG in the DoD Agency Financial Report for FY 2018.
8The Unsupported Accounting Adjustments material weakness identified by the DoD IG is included within the Fund Balance with
Treasury material weakness identified by DoD management in Exhibit 2.
9 The Gross Costs and Earned Revenue material weaknesses identified by the DoD IG were broken out from the Statement of Net
Cost material weakness identified in the DoD Agency Financial Report for FY 2018.
The Budgetary Resources material weakness identified by the DoD IG is included within the Financial Reporting Compilation
10
material weakness identified by DoD management in Exhibit 2.

11The DoD-Wide Oversight and Monitoring and Component-Level Oversight and Monitoring material weaknesses identified by
the DoD IG were broken out from the Oversight and Monitoring material weakness identified in the DoD Agency Financial Report
for FY 2018.
12The Financial Statement Compilation material weakness identified by the DoD IG in the DoD Agency Financial Report for
FY 2018 was consolidated into the DoD-Wide Oversight and Monitoring and Entity-Level Controls material weaknesses identified
by the DoD IG in FY 2019.
13 The Accounts Receivable material weakness identified by the DoD IG in the DoD Agency Financial Report for FY 2018 was
downgraded to a significant deficiency in FY 2019.
U.S. Navy Master-at-Arms 2nd Class Christopher Henderson, and Military Working Dog Mark,
forward-deployed to the security department, practice on an agility course at Camp Lemmonier,
Djibouti, Jan. 4, 2019.
U.S. Navy photo by Mass Communication Specialist 1st Class Joe Rullo

Other Information
Summary of Management Assurances

FMFIA Section 2, Effectiveness of Internal Controls over Financial Reporting
Exhibit 2 lists the FY 2019 material weaknesses in internal controls over financial reporting,
captured by end-to-end process and assessable unit, and reports the changes from the material weaknesses
disclosed in the DoD Agency Financial Report (AFR) for FY 2018.
Exhibit 2. FY 2019 Effectiveness of Internal Control over Financial Reporting (FMFIA §2)
Statement of Assurance: Modified Assurance
End-to-End Beginning Ending

Assessable Unit New Resolved Consolidated Reassessed
Process Balance Balance
Entity Level Controls 0 1 - - - 1

N/A
- -
Oversight and Monitoring 1 0 1 (1) 0
Fund Balance with - - - -
3 3
Budget-to-Report Treasury (FBWT)
Financial Reporting - - - -
6 6
Compilation
- -
Health Care Liabilities 2 2 (1) - 1
Hire-to-Retire
- - - -
Military Pay 3 3
- - -
Contract/Vendor Pay 6 2 8
Procure-to-Pay
- - - -
Reimbursable Work Orders 3 3
- - - -
Equipment Assets 2 2
- - - -
Real Property Assets 2 2
- - -
Environmental Liabilities 0 1 1
Acquire-to-Retire Accountability and
- - - -
Management of Property
Furnished to Contractors 1 1
for the Performance of a
Contract
Internal Use Software - - - -
1 1
(IUS)
- -
Inventory 3 4 3 (3) 4
Operating Materials & - - -
Plan-to-Stock 3 2 5
Supplies (OM&S)
Requisitioning Process - -
2 (2) - 0
(Customer Orders) 4
Total Material
38 10 (1) (3) (3) 41
Weaknesses
1 In FY 2019, the Department concurred with a material weakness identified by the auditor, implemented corrective actions to
remediate the material weakness, and validated the effectiveness of the corrective actions.
2
In FY 2019, two material weaknesses that were separately reported in FY 2018 were consolidated into a single reportable material
weakness
3 In FY 2019, three material weaknesses that were separately reported in FY 2018 were determined to be defined more accurately
under new headings

4 In FY 2019, two material weaknesses that were separately reported in FY 2018 as Requisitioning Process (Customer Orders)
were consolidated into the existing Reimbursable Work Orders material weaknesses

Other Information
Exhibit 3. Internal Control over Financial Reporting Corrective Action Plans
Areas of Material Weakness Corrective Actions

Entity Level Controls Entity Level Controls
Department-wide; Identified FY 2019 Department-wide; Correction Target FY 2021
• Multiple DoD Components do not have sufficient Entity Level • Components will conduct an annual evaluation of Entity Level
Controls to establish an internal control system that will produce Controls to analyze high-risk areas and develop mitigation and
reliable financial reporting. The lack of sufficient controls at the corrective action efforts.
Component level increase the risk of material misstatement on both
the Components’ financial statements and Agency-wide financial
statements
Fund Balance with Treasury Fund Balance with Treasury
• Ineffective processes and controls related to the reconciliation of • Track and reconcile collection/disbursement activity from the core
transactions posted to the Department’s Fund Balance with financial systems and associated feeder systems to the Department’s
Treasury (FBwT) accounts with the Treasury’s records. general ledgers and to Treasury accounts.
• Collections and disbursements are reported to Treasury but are not • Develop an auditable FBwT reconciliation process, to include the
recorded in the Department’s general ledger. implementation of internal controls that ensure reconciling
differences are accurate, documented, and resolved in a timely
• Ineffective processes for providing sufficient and accurate manner.
documentation to support FBwT transactions and reconciling items.
- • Analyze and resolve transactions posted to budget clearing accounts
- (“suspense” accounts).
-
• Analyze and resolve transactions reported on Treasury’s Statement
of Differences (e.g., deposit in-transit, Intra-Governmental Payment
and Collection, and check issue differences).
• Perform aging analysis of appropriations received and apply

reconciliations back to at least FY 2013.
• Obtain Statement on Standards for Attestation Engagements

(SSAE) 16/ SSAE 18, Reporting on Controls on Fund Balance with
Treasury – Transaction Distribution, which includes Defense Cash
Accountability Systems.
Financial Reporting Compilation Financial Reporting Compilation

• Ineffectively designed processes and controls to prepare accurate • Revise standard operating procedures and control descriptions to
financial statements supported by general ledger balances that align incorporate the requirements of OMB Circular No. A-136, and
with strategic performance plans to ensure compliance with improve variance analysis and annual financial report review
Generally Accepted Accounting Principles (GAAP) and the DoD procedures. Implement Standard Financial Information Structure
Financial Management Regulation. (SFIS) to standardize financial reporting that aligns with the
Department’s mission.
• Inability to reconcile detail-level transactions with the general • Obtain population of feeder system transactional data and perform
ledgers and provide adequate supporting documentation for reconciliations from feeder systems to the general ledgers and
adjusting entries. financial statements.
• Accounting balances are unsupported due to inadequate financial • Establish process to govern posting logic changes within DoD
management systems and related processes and procedures. accounting systems; consolidate, categorize, document, and
prioritize system requirements for changes to enable correct posting
logic compliance issues.
• Inconsistency between documented processes and procedures • Establish guidelines for reconciliation variances that need to be
versus actual procedures performed regarding reconciliations and resolved and require relevant service providers to post corrections
resolving differences. in a timely manner.
• Lack of developed approach for performing reconciliations and • Develop approach for performing reconciliations and retaining data
retaining data for sensitive activities. for sensitive activities.
• Inconsistent procedures for recording Journal Vouchers and • Implement controls that ensure adequate documentation exists to
Standard Business Transactions. Supporting documentation validate and support journal entries
retention procedures also pose a significant risk to producing
accurate and complete financial statements and reports. • Establish an enterprise records management program and develop
file management plans that will identify a centralized repository for
documentation retention.

Other Information

Health Care Liabilities Health Care Liabilities
• The Military Treatment Facilities (MTFs) do not have compliant, • Complete the implementation of new Enterprise Resource Planning
transaction-based accounting systems that apply common and (ERP) core financial systems for each Service in order to record
consistent business rules in a manner envisioned by the accrual-based, patient-level cost accounting data.
Department’s planned Standard Financial Information Structure.
There is insufficient evidence that adequate controls exist and have • Develop and implement methodology for patient itemized bills to
been implemented to ensure the timeliness and accuracy of medical address the auditor-identified weakness related to direct care.
coding processes at MTFs. The MTF-level data is based on budget Itemized patient bills for all patients provided care will be attainable
execution processes, rather than accrual-based accounting. There is with the deployment of the new Electronic Health Record; which is
insufficient evidence that appropriate and consistent cutoff of projected to be implemented across the Military Health Services by
accounting activity occurs at the MTF level. close of FY 2025.
• Deploy the Itemized Billing Solution and the Coding Compliance

Editor to support the Department’s ability to generate accurate
itemized bills and establish justifiable audit trails. The initial
deployment is projected to begin in July 2021, and is anticipated to
be fully deployed by the close of FY 2025.
Military Pay Military Pay

• Ineffective processes and controls to record military pay • Develop and implement a plan for an integrated pay and personnel
transactions and personnel actions in a timely, complete, and system designed to determine pay and entitlements, report ad hoc
accurate manner. financial management data, and capture and store key supporting
documentation.
• Unreliable and/or lack of supporting documentation for personnel
actions.
• Outdated military pay and financial management information

technology systems lack modern capabilities to support required
auditability framework. Current deficiencies require unsustainable
manual activities to support auditability.
Contract/Vendor Pay Contract/Vendor Pay

• Lack of standard data structure governing purchase request format • Establish and publish DoD Instruction setting policies, procedures,
prevents traceability and use of electronic transactions from and data standards for purchase requests.
initiation of funding through contract execution.
• Funding may not be accurately recorded or available in the • Publish and implement an automated pre-award funds validation
accounting system at the time of contract award. Lack of standard standard operating procedure to ensure funds have been accurately
processes for recording contract obligations electronically in recorded and are available prior to award, and that accounting
financial systems. systems can accurately record proposed contract award structure.
• Insufficient policies governing the recording of accruals related to • Publish a policy to expand the use of accrual recording based on
contracts. Wide Area Workflow acceptance data to additional accounting
systems
• Inability to reconcile contract data to financial data. Unable to • Develop policies, procedures, and data standards for electronic
reconcile buyer and seller intragovernmental and intergovernmental / intragovernmental transactions. Pilot
intergovernmental transactions. capability to obtain contract source data can be accurately matched
to recorded accounting data for public posting.
• Current systems and processes do not enable match of award to • Remove regulatory discretion in establishing type of payment
accounting data for public transparency, (e.g., Data Act). request. Establish entitlement systems assignment rules based on
payment type.
• Lack of timely contract closeout and de-obligation of funds limits • Implement controls to ensure contract data can be accurately
the Department’s access to capital. matched to recorded accounting data for public posting.
• Improper payments may result from incorrect payment request • Develop department-wide contract closeout standard operating
type or from assignment of contracts to entitlement systems that do procedures to ensure financial systems are in balance and de-
not have procedures for the financing payments or payment of cost obligations of funds occur returning available funds back to
vouchers on cost type contracts. programs in a timely manner.

Other Information

• Lack of standard processes for recording contract obligations • Scorecard all accounting and entitlement systems to track progress
electronically in financial systems. toward recording contract obligation compliance with standard
procedures
Reimbursable Work Orders Reimbursable Work Orders
• Lack of evidence of performance, acknowledgement of receipt of • Treasury has identified G-Invoicing as a solution to
intragovernmental goods and services, and validity of open intragovernmental transaction differences and will develop an online
obligations. portal for conducting Buy/Sell transactions to manage the processing
and approval of general terms and conditions (GT&C) Agreements,
Orders, and Invoices.
• Inability to verify the timeliness and accuracy of disbursements and • DoD Components will perform gap analyses on key processes, build
validate recorded reimbursable agreements. and enter GT&C’s agreements in G-Invoicing system, participate in
G-Invoicing training, and build orders in accordance with data
standards.
• Ineffective process to collect, exchange and reconcile buyer and • DoD Components will fund, design, and build all accounting system
seller intragovernmental transaction. interfaces in alignment with Treasury’s G-Invoicing release
- schedule.
• DoD Components and the Defense Finance and Accounting Service

will implement training, guidance, and management oversight of
periodic reviews, and identify and implement standard enterprise
reconciliations that provide for validation of the seller/buyer-side
balances and input of supported journal vouchers for timing
differences.
Equipment Assets Equipment Assets
• Processes and controls to account for the quantity and value of • DoD Components to continue to validate asset listings, document
military and general equipment are not effective. process and control environments.
• Insufficient internal controls and supporting documentation • DoD Components are developing and implementing an approach for
requirements to ensure timely recording, relief, and accuracy of valuing Equipment and sustaining these values, modifying
Construction in Progress (CIP). Accountable Property System of Record (APSR) to ensure they
- capture the required data.
-
- • DoD Components are applying controls and procedures to manage
- property accountability.
-
• Provide a consistent and streamlined valuation methodology for
General Equipment (GE) across the department.
• Continue to convene the GE Working Group, report on quarterly

progress in establishing accountable records.
• Leverage Component Property Lead property accountability

workshop to promote sound accountability practices.
• Develop standard data elements and reporting metrics to standardize

equipment accountability.
Real Property Assets Real Property Assets
Existence and Completeness Existence and Completeness
• Real property processes, controls and supporting documentation do • Implement and regularly conduct a lifecycle process for a real
not substantiate that (1) all existing assets are recorded in an APSR property physical inventory:
and (2) all assets recorded in the APSR properly reflect the
Department’s legal interest in the asset. o Include validation of information for those data elements
required in the calculation of Plant Replacement Value for
alternative valuation in accordance with Statement of Federal
Financial Accounting Standards 50.
o Ensure adequate documentation is available to support

existence and completeness and placed in service dates.
• Implement lifecycle process for regular reconciliation of real

property assets and the financial statements.

Other Information

Valuation, Rights & Obligations, Presentation, and Disclosure Valuation, Rights & Obligations, Presentation, and Disclosure
• Real property processes, controls and supporting documentation do • Ensure proper posting and reporting within financial systems and
not substantiate that (1) all real property assets are properly valued implement process for regular reconciliation of CIP and the financial
and (2) documentation for all real property assets properly support statements.
rights and obligations, and are appropriately presented and
consistently reported in the financial statements. The Department • Ensure adequate documentation is available to support valuation of
has insufficient internal controls and supporting documentation to real property in the APSR, to include physical inventories used to
ensure complete physical inventories to support deemed cost; and calculate deemed cost values.
the timely recording relief, and accuracy of CIP values for real
property construction or improvements in financial systems and the • Ensure adequate documentation is available to support rights and
Accountable Property System of Record. obligations for financial statement reporting, specifically real
property use agreements outlining responsibilities of each party, to
include but not limited to, responsibility for financial reporting.
Environmental Liabilities Environmental Liabilities

• The Department is unable to develop accurate estimates and account • Track progress of individual action plans related to real property and
for Environmental Liabilities (EL) in accordance with generally equipment physical inventory procedures.
accepted accounting procedures due to the following issues:
• Review NFRs for overarching policy gaps and develop policy as
o The Real Property Department-wide Existence and needed.
Completeness Material Weakness does not allow a full and
accurate accounting of asset-driven EL outside of the Defense • Review and track Component corrective action plans to implement
Environmental Restoration Program. systems, processes, and controls to ensure the accuracy of
environmental liabilities identification, valuation, documentation
o Existence and Completeness issues with the General and reporting.
Equipment inventories does not allow a full and accurate
accounting of asset-driven EL associated with equipment. • Complete centralized packages for support of Remedial Action Cost
Engineering Requirements model during Component audit.
o Insufficient formal policy, procedures and supporting
documentation exists for developing and supporting cost
estimates.
Accountability & Management of Property Furnished to Contractors Accountability & Management of Property Furnished to Contractors
for the Performance of a Contract for the Performance of a Contract
• The Department does not have clear guidance and had not properly • Improve guidance and business processes to ensure accountability
trained Program Office staff, contract specialists, and accountable of GFP and contractor acquired property and continue to review
property officers regarding policies and procedures for existing contracts and establish accountability over legacy GFP.
appropriately managing property provided to a contractor (this
includes both contractor acquired property and Government • Continue to deploy and utilize the electronic DoD enterprise
Furnished Property (GFP)). As a result, the Department’s solutions for standard GFP transactions.
Accountability records are incomplete. Audit reports have
consistently identified a lack of accountability concerning GFP and • Review metrics such as GFP contract clause compliance, assertion
contractor acquired property, for which the Department has title but packages and APSRs for each component and provide analysis of
not immediate physical control. progress towards accountability.
• Continue to hold GFP Working Group meetings.
• Monitor newly established requirements for reporting compliance.

Other Information

Internal Use Software Internal Use Software
• The Department has not properly addressed the management and • Continue to identify and establish accountability over existing IUS
financial reporting of Internal Use Software (IUS), which is and identify new acquisitions to ensure capital IUS costs are
required by Statement of Federal Financial Accounting Standards captured and reported appropriately in accordance GAAP.
(SFFAS) 10 and must be addressed through updated guidance in the
Financial Management Regulation (FMR) • Develop and implement processes and system changes to APSRs,
- and deploy and update APSRs to account for IUS. Evaluate
- Department-wide compliance for IUS APSR requirements to drive
- IUS APSR requirement and policy changes. Continue to convene
the IUS working group to highlight policy and guidance gaps.
• Develop implementation guidance and updated policies in response

to Component identified gaps.
• Validate corrective actions; promote use of SFFAS 50 allowances

for opening balance of IUS.
• Develop and draft implementation guidance on software licenses in

conjunction with Chief Information Officer, Comptroller, and
Components.
Inventory Inventory
• Inadequate policies and procedures over comingled inventory, • The Department drafted policy to address issues with physical
timely reconciliation of subsidiary ledgers to the Electronic inventories and comingling. DoD Components will develop
Business System, and proper application of SFFAS 48 inventory systematic requirements to perform a transactional level
costing methodologies. reconciliation by implementing automated solutions, developing
policy, and testing internal controls. DoD Components have
updated and implemented procedures and are testing internal
controls around inventory valuation. DoD Components are
developing and implementing a new policies and Standard
Operating Procedures covering SFFAS 3 methods.
• Lack of internal controls to support management's assertion of • DoD Components will use Enterprise Risk Management and
existence and completeness of Inventory, to prevent users from Internal Control Programs to develop a Manager's Internal Control
posting transactions that exceed their approved thresholds, to Program process with internal controls in accordance with an
review and follow-up of inventory and to review interface enterprise Corrective Action Plans. The Department drafted policy
transmission errors, and to ensure transactions are recorded in the to address issues with physical inventories and comingling and has
proper period for existence, completeness, and valuation of placed priority on Government Property in Possession of
inventory. Contractors. Efforts will continue to updated inventory accrual
internal control activities. DoD Components will update inventory
processes to include controls to verify the existence, completeness
and valuation of inventory and implement policy changes to support
long-term Courses of Action to mitigate inventory weaknesses
• Insufficient evidential matter to support inventory transactions, • The Department drafted policy to address issues with physical
inventory held at third parties, and that erroneous transactions were inventories. The Department published a memo to prioritize
identified and corrected completely and accurately. Government Property in possession of contractors. DoD
Components to design better reports and improve management
oversight and the procedures to improve Design and Effectiveness
of management oversight controls.
• Insufficient documentation to ensure updated business process • DASD(Logistics) and the DoD Components will define Title
control measures completely reflect all sub-processes within Transfer for each category of in-transit inventory. DoD Components
inventory and are recorded on a timely basis. will create and maintain documentation that provides an end-to-end
process narrative including an accurate depiction of the internal
control environment.

Other Information

Operating Materials & Supplies (OM&S) Operating Materials & Supplies (OM&S)
• Historical cost data is not maintained while using the Moving • The Department is implementing a new system to calculate Moving
Average Cost calculation method as required by the FMR. Average Costs and maintain proper documentation, as required by
the FMR.
• DoD Components do not consistently have evidential matter readily • The Department is implementing a new accounting system to
available to demonstrate that OM&S was properly reported in improve transaction recording, improve documentation, correct
financial statement. control gaps, and improve internal processes to ensure proper
valuation and documentation.
• DoD Components lack policies and procedures to demonstrate end- • The Department drafted policy to address issues with physical
to-end process to account for OM&S-Remainder and related inventories. DoD Components will create and update policies and
financial documentation. procedures to accurately process and document OM&S. Services to
migrate accounting processes to an accountable property system of
record.
• The Department has not performed an annual assessment of OM&S • The Department Plant Property & Equipment team is developing
acquired by Components for the purposes of determining enterprise level guidance to appropriately account and value all
appropriate accounting treatment under SFFAS 3. Inventory & Real Property assets.
• The Department does not report OM&S Inventory on the Balance • The Department will determine the aggregate value of the OM&S
Sheet in accordance with SFFAS 3 and related standards. categories and analyze which the Purchase Method to be used. The
Department will finalize the analysis and reporting format/approach
for OM&S amounts in accordance with the FMR.
U.S. Army Paratroopers with the 1st Squadron, 40th Cavalry Regiment (Airborne), 4th Infantry Brigade Combat Team (Airborne), 25th Infantry Division, U.S. Army
Alaska, huddle to protect a mock casualty from the rotor-wash of a landing UH-60 Black Hawk helicopter at Joint Base Elmendorf-Richardson, Alaska Feb. 20, 2019.
U.S. Army photo by Sgt. Alex Skripnichuk

Other Information
FMFIA Section 2, Effectiveness of Internal Control over Operations

DoD Components use an entity-wide, risk-based, self-assessment approach to establish and assess
internal controls for mission-essential operations. Exhibit 4 lists the FY 2019 material weaknesses in the
internal controls over operations, captured by operational area, and reports the changes from the material
weaknesses disclosed in the DoD AFR for FY 2018.
Exhibit 4. FY 2019 Effectiveness of Internal Controls over Operations (FMFIA §2)
Statement of Assurance: Modified Assurance
Beginning Ending
Assessable Unit Balance
New Resolved Consolidated Reassessed
Balance
- -
Acquisition 1 2 0 3
Comptroller and/or Resource - - - -
1 1
Management
- - - -
Communication 1 1
- -
Contract Administration 5 3 (2) - 1
- - -
Information Technology 2 1 3
- - - -
Force Readiness 1 1
Manufacturing, Maintenance, - - - -
1 1
and Repair
Personnel and/or Organizational - - - -
5 5
Management
- -
Operations 6 1 - (1) 0
- - -
Security 7 1 (1) 0
- - -
Support Services 2 - 2
- - -
Supply Operations 1 1 2
Total Material Weaknesses 20 4 (1) (2) (1) 20
5 In FY 2019, three material weaknesses that were separately reported in FY 2018 were consolidated into a single reportable
material weakness
6 In FY 2019, one material weakness reported in FY 2018 related to Department of the Navy ship operations was downgraded to a
significant deficiency following implemented improvements

7 In FY 2019, one material weakness reported in FY 2018 related to Department of the Navy facility security was downgraded to
a significant deficiency following implemented improvements

Other Information
Exhibit 5. Effectiveness of Internal Controls over Operations Corrective Action Plans

Acquisition Acquisition
• Many DoD acquisition programs fall short of cost, schedule, and • Implement DoD 5000 series policy mandates and guidance to
performance expectations resulting in unanticipated cost overruns, properly align acquisition with Agency Mission and Needs which
reduced buying power, and/or in some cases resulting in a delay or reduces risk and impacts to cost, schedule and performance.
reduction in the capability ultimately delivered to the warfighter.
• Continue to improve implementation of Better Buying Power 3.0
and clarification/update of DoD Instruction 5000.02.
• Lack of Program Executive Office Program, as mandated by the • Develop and implement Procedural Instruction for Acquisition
DoD 5000 series of issuances Approval and Governance. Create supporting tools to aid and
inform decisions, reduce the staff effort to review the programs, and
o Acquisition lifecycle oversight, policies, regulations, and improve the monitoring and forecasting of potential trouble or risk
organizational structure are non-compliant areas.
o Lack of effective process to support mission by identifying, • Conduct Systems Reviews, Capability Portfolio Reviews,
assessing, and providing oversight of development and Configuration Steering Boards and Cost Reviews to identify process
procurement solutions. inefficiencies and improve the acquisition management process.
o Inadequate documentation and filing of acquisition records. • Develop additional procedures to establish oversight controls for
programs, including procedures to report cost, schedule and
performance variances, and to address reported variances.
• Establish a system of tracking to report acquisition program

performance and highlight variances.
• Non-compliance with Clinger Cohen Act, 10 U.S.C. §2222, DoD • Publish updated Investment Management Guidance with business
Instruction (DoDI) 5000.74, and DoDI 5000.75; insufficient capability review instructions and schedule.
management and oversight of IT services and Defense Business
Systems; Inadequate use of DoD and Defense Contract • Publish the Defense Business Operations Management Strategic
Management Agency controls. Plan addressing investment management, portfolio management,
business architecture, and information technology modernization
strategies.
• Establish portfolios and capability strategies for each portfolio,

conduct portfolio reviews following implementation.
• Identify initial optimization opportunities for review by Defense

Enterprise Business Operations Senior Steering Group / Defense
Business Council, pursue approved optimization opportunities.
• Complete validation of Defense Acquisition Workforce

Improvement Act (DAWIA) acquisition certification required
positions.
• Establish training plan for involved personnel, certify personnel;
• Staff-up DAWIA positions with certified employees.
Comptroller and/or Resource Management Comptroller and/or Resource Management

• Ineffective internal controls and management oversight for • Brief leadership, appoint and train staff, develop risk profiles,
processes such as management of improper payments and use of conduct initial, quarterly and annual validation and assessment, and
Internal Use Software and property furnished to contractors. automate as appropriate.

Other Information

Communication Communication
Department of the Air Force; Identified FY 2018 Department of the Air Force; Correction Target FY 2023
• The Department of the Air Force (AF) has identified a systemic • Identify Digital fingerprinting hardware, software to improve
issue in communication of security information between archiving, and ability to reference/verify fingerprinting and
installations and appropriate external entities. facilitate transfer of fingerprints between U.S. law enforcement
agencies.
• Identify partnering solution with AF Office of Special

Investigations.
• Security Forces Management Information System Replacement.
• Long-term software solution for case management.
Contract Administration Contract Administration

Department-wide; Identified FY 2009 Department-wide; Correction Target Reassessed annually
• The Department must strategically manage Services Acquisition, • Continue to track and monitor training requirements for Acquisition
define outcomes, and capture data to facilitate strategic management workforce including new training for Mid / High Level
of the acquisition function. Requirements and Contracting Professionals.
• The Department continues to face challenges meeting fiscal year • Publication of a revised DoDI 5000.74, “Acquisition of Services” as
competition goals and needs to address ill-suited contract required by the National Defense Authorization Act (NDAA) for
arrangements and utilize incentives. FY 2017, Sec. 803.
• The acquisition workforce is not appropriately sized, trained, and • Continue publication of DoD quarterly competition achievement;
equipped to meet the Department’s needs. on-track to achieve continuing goal of 53%; continue to implement
the April 2016 DoD publication, “Guidance on Using Incentive and
Other Contract Types” when selecting and negotiating a contract
type.
Information Technology Information Technology

• DoD financial and business management systems and processes do • Expand review and analysis of proposed information technology
not provide reliable, timely, and accurate information. (IT) systems. Update the DoDI 5000.75 and increase Investment
Review Board oversight. The target date to correct this material
weakness coincides with the full deployment schedule of the core
business systems.
• Systemic shortfalls in implementing cybersecurity measures to guard • Establish processes to ensure stakeholder participation in the
the data protection environment. Gaps in cybersecurity access Cybersecurity Scorecard meetings and alignment of service
controls including privileged user authentication and public key scorecard metrics to audit findings.
infrastructure and device hardening / encryption contribute to data
protection vulnerabilities. Issues exist in policy compliance with • Revise current user system access policy, to include clear guidance
cybersecurity measures, oversight, and accountability. on requirements for privileged user access authorization and
credential revocation, user access and control training certification,
user monitoring and Public Key Infrastructure-based
authentication/credentials.
• Revise current acquisition and IT purchase contracts and policy to

require the adoption of established user access controls and
encryption/hardening standards.
• Revise current policy on shared file and drive protection, to include

requirements for encryption use and stringent password protection
that at a minimum meets password requirements specified in DoDI
8520.03 for stronger authentication.
• Numerous weaknesses in IT governance, especially in the areas of • Develop, communicate, and implement entity-level IT security
security management, access controls, segregation of duties, and policy, procedures, and practices focusing in the areas of security
inconsistent IT policies/procedures/practices across Components; management, access controls, and segregation of duties.
lack of clear, concise IT security requirements for in-house-
developed and acquired systems; inability to produce detailed user • Develop and provide training to users and privileged users regarding
listings to support periodic recertification of privileged and non- the consistent implementation of new IT security policy, procedures,
privileged user accounts; an inability to produce application-level and practices for Defense Health Program Component systems.

Other Information

audit logs related to account management and configuration
management; and a lack of periodic review and update of system- • Continuously monitor implementation of entity-level IT policies,
level policy documentation. DoD Component officials did not procedures, and practices locally and holistically.
assess network components for cybersecurity vulnerabilities prior to
connection and throughout the component life cycle. • Designate employees to manage accountable property; establish &
implement cyclical inventory schedule (staff up).
• Integrate software acquisition, license media management, and

limited asset resources into a single focus point managing software
lifecycle.
• Automate acquisition, discovery, tracking, fielding, retirement, and

involved audit processes to the greatest extent possible.
• Research and acquire, or design and implement an access control

system or record.
• Update Enterprise Configuration Monitoring Strategy to include

investigating, identifying, and disseminating the best use of
monitoring tools and techniques for the network component level.
• Clearly identify lines of demarcation between acquisition and

provisioning.
• Deploy and Test Access control system where appropriate.
Force Readiness Force Readiness

Department-wide; Identified FY 2016 Department-wide; Correction Target Reassessed annually
• Independent and internal reviews of DoD's nuclear enterprise • Develop corrective action plans that align with the
identified problems and recommendations needed for a safe, reliable, recommendations from the independent reviews. Classified
and credible nuclear deterrent. These included internal control corrective action plans are maintained by the applicable entities
related items such as a need for increased managerial oversight, for within the U.S. Strategic Nuclear Forces and are based on year-to-
an improved self-assessment program, for increased oversight year Congressional funding. Remediation of this corrective action
capability, and for useful nuclear inspection reports. The reviews will involve incremental improvements over a multi-year horizon.
also made recommendations to address these problems.
Manufacturing, Maintenance, and Repair Manufacturing, Maintenance, and Repair

Department of the Navy; Identified FY 2016 Department of the Navy; Correction Target FY 2020
• Multiple audits and studies identified a wide range of control issues • Identify obstacles to execution performance.
that cumulatively create material weaknesses in ship depot
maintenance. Policies for defining, costing, and executing • Identify variance between Execution Year Guidance to President’s
maintenance all require improvement to correctly predict both cost Budget and developed mitigations.
and duration of depot maintenance.
• Integrate depot maintenance in assessable units Managers’ Internal
Control Program.
• Establish the President’s Budget as the baseline for execution year

variance tracking.

Other Information

Personnel and/or Organizational Management Personnel and/or Organizational Management
• Average civilian time-to-hire in the Department increased by 40% • The Department has multiple civilian personnel HR service
(from 70 to 106 days) between FY 2013 and FY 2017. providers operating within and across components but no systems to
define, collect, monitor, or analyze their performance or cost data,
nor to monitor and control the types of services provided.
• The Department required all components to develop and execute

• The Department does not systematically collect data on hiring data-based Action Plans to reduce time to hire. The Department’s
manager satisfaction with process or with quality of candidates for initial goal is to reduce average time to hire from 106 to 85 days or
civilian positions. less. A Department-level functional workgroup was established and
is working to reach the target goal.
• The Department manages its civilian workforce under 66 personnel • The Department will start collecting hiring quality and satisfaction
systems, over 60 pay systems, and scores of special Human Resource data; after determining baseline measures, the Department will
(HR) authorities and flexibilities. This has caused excessive establish future quality / satisfaction goals consistent with results
complexity and variability in HR processes. achieved by other large federal agencies.
• The Department is undertaking procedures to simplify, streamline,

• DoD HR specialists and managers lack training and tools to master and standardize its HR processes and to provide better and more
the complex civilian federal hiring process. cost-effective HR services. The Department intends to pursue
legislative relief where necessary to reduce complexity and increase
efficiency of HR processes. Expect initial results in FY 2020.
• The DoD HR Functional Community was formally organized in

FY 2018 to define and assess HR competencies, establish learning
standards, and develop career paths. Expect initial results in
FY 2021.
• Execute HR Service Delivery project (HR Reform lead) to define,

monitor, and evaluate key performance and efficiency measures for
Defense Agency and Field Agency HR Service providers; identify
and remedy instances of fragmentation, overlap, and duplication;
and address inefficiencies and implement reforms. Expect initial
results in FY 2021.
• Transition to single Software as a Service/Cloud civilian human

capital management system initially for core HR transactions, and
eventually for integrated talent management (i.e., performance
management, learning, compensation, awards, workforce and
succession planning). (Joint IT, HR, FM Reform project continuing
through FY 2023.)
Support Services Support Services

• Insufficient Component/Assessable Unit (AU) audit or review of • Generate requirements for internal audit/review of operations
internal operations: Lack of evidence showing sufficient leadership performance and law, regulation, and policy compliance and
actions regarding internal audit or review results. Excessive document in DoD instruction.
Government Accountability Office and DoD Inspector General
(DoD IG) findings. DoD IG report indicates 37% of DoD internal • Generate and deliver training in audit objectives and techniques to
audit organizations have deficiencies or fail in effectively Department leadership and entire global DoD audit/review and
monitoring Component / AU activities, several DoD Components / managements’ internal control program communities.
AUs do not seem to have an internal audit/review function. Systemic
deficiencies exist across the audit and review services. • Form Office of the Secretary of Defense-level audit function
reviewing the audit performance of DoD entity audit / review
functions and reporting to DoD senior leadership routinely.
• Business Transformation: The Department spends billions of dollars • Adopt a reorganization under the new Chief Management Officer in
each year to maintain key business functions intended to support the accordance with the NDAA for FY 2018. Initiate expanded
warfighter. Lack of support for transformation. The Department Department-wide continuous process improvement (CPI) training,
continues to confront decades-old management weaknesses related develop CPI experts, and promote continuous and visible leadership
to its business functions that support these forces. support for transformation.

Other Information

Supply Operations Supply Operations
Department-wide; Identified FY 2011 Department-wide; Reassessed annually
• Insufficient asset visibility causes the DoD to unnecessarily order • Improve supplier threat assessment collection and analyses,
supplies it already has. Lack of supply condition knowledge inhibits implement methods to mitigate risk such as improved hardware and
reorder of supplies were damaged and need to be reordered. software testing; and enhancing processes for approved product and
vendor lists.
• Conduct an evaluation of whether DoD Components are conducting

appropriate risk assessments, implementing risk mitigation
strategies, and using continuous monitoring procedures
• Recent reductions in the number of suppliers from which the DoD • Improve the buying power of the DoD.
can purchase raw materials and finished goods affects the DoD’s
ability to obtain necessary supplies in a timely manner and of • Increase transparency in the procurement process.
sufficient quality. The DoD needs to continue to focus on
strengthening the security and effectiveness of its supply chain. • Implement best practices in cost and contract management by
strategically sourcing.
• Continue utilization of reverse engineering where applicable and

appropriate.
• Repair existing parts economically and efficiently where applicable

and appropriate.
• Remove fraudulent suppliers currently in the supply chain.
• Address limited distribution networks and transportation capabilities

to transport supplies to the right place at the right time, safely and
securely.
The Navy’s forward-deployed aircraft carrier USS Ronald Reagan (CVN 76) sails alongside the Japan Maritime Self-Defense Force guided-missile destroyer
JS Myoko (DDG-175) while underway.
U.S. Navy photo by Mass Communication Specialist 2nd Class Kaila V. Peters

Other Information
FMFIA Section 4, Compliance with Federal Financial Management Systems Requirements

In accordance with FMFIA section 4, the Department requires that all DoD financial systems
comply with federal financial management systems requirements. Exhibit 6 lists the number of instances
of non-conformance with federal financial management systems requirements and reports the changes from
the instances of non-conformance disclosed in the DoD AFR for FY 2018.
Exhibit 6. FY 2019 Compliance with Federal Financial Management System Requirements (FMFIA §4)
Statement of Assurance: No Assurance
Beginning Ending
Non-Conformance Balance
New Resolved Consolidated Reassessed
Balance
Federal Financial Management - - -
3 (3) 0
Systems Requirements 8
- - -
Business System Modernization 0 1 1
- - -
General & Application Controls 0 1 1
- - -
FFMIA Compliance 0 1 1
Total Non-Conformances 3 3 0 0 (3) 3
FFMIA Section 803(a), Implementation of Federal Financial Management Improvements

Section 803(a) of the FFMIA requires each federal agency to implement and maintain financial
management systems that comply substantially with (1) federal financial management systems
requirements, (2) applicable federal accounting standards, and (3) the United States Government Standard
General Ledger (USSGL) at the transaction level. Exhibit 7 lists the instances of non-compliance with
federal financial management systems requirements.
Exhibit 7. FY 2019 Implementation of Federal Financial Management Improvements (FFMIA §803(a))
Agency Auditor
Federal Financial Management Systems

Lack of Compliance Noted Lack of Compliance Noted
Requirements
Applicable Federal Accounting
Lack of Compliance Noted Lack of Compliance Noted
Standards
USSGL at Transaction Level Lack of Compliance Noted Lack of Compliance Noted
8
In FY 2019, three material weaknesses that were previously reported together under a single heading were
determined to be defined more accurately under separate headings.

Other Information
Exhibit 8. Compliance with Federal Financial Management System Requirements Corrective Action Plans
Business System Modernization Business System Modernization

• Delays in achieving business system modernization targets, results • By the end of FY 2020, the Department will have a business system
in a significant probability of degraded DoD business process rationalization plan that will, lay out the number of systems to be
operations to include efficiency and effectiveness and non- retired, resulting in a reduced footprint of systems that impact
compliance with certain laws and regulations (ex., FFMIA). In Financial Reporting. This includes a reduction in the number of
addition, the number of applications, hosting locations, variations in legacy IT systems by 51, between FY 2019 to FY 2023.
technology, number of interfaces, etc. creates a complex
environment where it is difficult to maintain effective IT General • To date, 23 of 26 Other Defense Organizations (ODOs) have been
and Application controls (including information security). migrated to a common ERP system, the Defense Agencies Initiative
(DAI). There are three additional ODOs scheduled for deployment
in FY 2021. The DAI application received an unmodified SOC 1
report for FY 2019. DAI is an FFMIA-compliant Oracle ERP
Commercial off the Shelf (COTS) solution.
General & Application Controls General & Application Controls

• The DoD IT systems environment includes numerous legacy • The Office of the Under Secretary of Defense (Comptroller)
systems, core enterprise systems that support the major end-to-end (OUSD(C)) has established a database, FIAR Systems Database, to
processes, and nine Enterprise Resource Planning (ERP) systems. identify applications and hosting locations that impact DoD
Most of the business legacy systems were originally designed to financial statement audits and track the auditor feedback regarding
support functional purposes, such as human resource management, system controls reliance. During the FY (June 30, 2019), DoD
property management, and logistics management. These systems Reporting Entities and Service Organizations had identified 247
were not originally created for auditable financial statement systems relevant to internal controls over financial reporting. This
reporting. The current systems environment is made up of many number is expected to change as the system environment evolves
legacy, core, and newly implemented (feeder and general ledger) and the financial statement audits mature.
systems that lack integration and are not in line with the Federal
Information System Controls Audit Manual (FISCAM) • The Military Departments (MILDEPS) continue to deploy ERP
requirements with regards to entity-level technology general solutions to their Commands along with software upgrades,
controls, application-level general controls and automated implement System Change Requests (SCRs) and standup formal
application controls (including security management, access, enterprise monitoring programs for transitioning to a Risk
segregation of duties, configuration management, system interfaces, Management Framework (RMF). In addition, the Department has
master data, and audit trails). integrated audit relevant IT controls into the RMF system
accreditation process (for systems that impact internal controls over
financial reporting).
• In 2005, DoD service organizations began to obtain System and

Organization Control (SOC 1) Reports for systems and hosting
services. For FY 2019, DoD Service Organizations have obtained
11 unmodified opinions and 12 modified opinions. This includes
one new SOC 1 report and two transitioning from a Type 1 to a Type
2 for FY 2019. Reporting entities and their auditors have been
instructed to provide feedback on the SOC 1 reports and service
organizations have also been instructed to provide plans for SOC1
scope expansions and additional SOC 1 reports.
• OUSD(C) has implemented a database to track auditor NFRs and

associated corrective action plans. A CFO IT Functional Council
was established in April 2018 to report on the status of IT NFRs and
associated CAPs, identify common IT issues, share solutions, and
identify instances where common solutions are needed.
• In February 2019, the Secretary of Defense issued a memo defining

high priority areas for correction identified during the FY18
Financial Statement Audit, which included system access controls.
Subsequently, DoD CMO/CFO/CIO issued a policy memo in July
2019, defining six priority items for corrective actions.

Other Information

FFMIA Compliance FFMIA Compliance
• The Department’s financial systems currently do not provide the • OUSD(C) updated the Internal Control Guide in April 2018 to
capability to record financial transactions in compliance with: include additional guidance related to identifying relevant financial
and non-financial systems and performing FFMIA assessments.
o Current federal financial management requirements System owners record the FFMIA compliance status for their
applications in the FIAR Systems Database concurrent with audit
o Applicable federal accounting standards readiness status.
o The Treasury USSGL at the transaction level • To date, a 23 of 26 Other Defense Organizations (ODOs) have been
migrated to a common ERP system, the Defense Agencies Initiative
(DAI). There are three additional ODOs scheduled for deployment
in FY 2021. The DAI application received an unmodified SOC 1
report for FY 2019. DAI is an FFMIA compliant Oracle ERP COTS
solution.
• The Military Departments (MILDEPS) continue to deploy ERP

solutions to their Commands along with software upgrades,
implement System Change Requests (SCRs).
• With the assistance of the Joint Interoperability Test Command,

OUSD(C) worked with the Department financial system owners to
complete SFIS compliance assessments for 28 systems through FY
2018. Assessments for an additional 26 systems are currently
planned through FY 2020. The SFIS requirements are aligned to
and consistent with FFMIA requirements. Currently, the
Department is assessing which systems require SFIS compliance
assessments.
• In the interim for systems not providing USSGL compliant data to

ADVANA (Universe of Transactions), we are building automated
SFIS validation checks into ADVANA. Currently, these checks
have been validated for DAI and Navy ERP, with the remainder of
the systems to be validated by the end of FY 2020. This includes
checks such as: posting logic, tie point logic, and valid USSGL
attributes.
• By the end of FY 2020, DoD will have a business system

rationalization plan that will, lay out the number of systems to be
retired, resulting in a reduced footprint of systems that impact
Financial Reporting. This includes a reduction in the number of
legacy IT systems by 51, between FY19 to FY23.
U.S. Army Sgt. Nicholas Ofield, assigned to the 91st Brigade Engineer Battalion, 1st Armored Brigade Combat Team, 1st Cavalry Division, takes
up a defensive position in an M2 Bradley Fighting Vehicle during exercise Combined Resolve XI in Hohenfels, Germany, Dec. 6, 2018.
U.S. Army National Guard photo by Staff Sgt. Ron Lee

Other Information
Payment Integrity
The reduction of improper payments 9 and compliance with the Improper Payments Elimination and
Recovery Act of 2010 (IPERA) continue to be top financial management priorities for the Department. The
Department complied with the requirements of federal improper payments legislation 10 through the
activities of its Payment Integrity program. This program is comprised of eight separate programs that
report improper payments for six categories of pay/benefits (civilian pay, commercial pay, military health
benefits, military pay, military retirement, and travel pay) that collectively encompass the majority of
payments made by the Department annually.
In FY 2019, each of the Department’s eight programs reported improper payment estimates below
the IPERA statutory threshold of 10%. Specifically, the Department identified $608.42 billion in
payments 11 subject to testing under IPERA and estimated an overall improper payments rate of 1.43%.
Given the large dollar amount of DoD payments, this percentage represents $8.68 billion in improper
payments and an estimated $599.74 billion (98.57%) in properly paid payments (see Exhibit 9).
• Overpayments, underpayments, and technically improper payments due to noncompliance with

statutes or regulations totaled $1.09 billion (0.18% of total outlays subject to testing under IPERA).
• Unknown payments, which are payments with insufficient supporting documentation available to
review totaled $7.59 billion (1.25% of total outlays subject to testing under IPERA). As a result of
a new sampling methodology and a more extensive examination of key supporting documentation
in the Military Pay program in FY 2019, a significant increase in improper payments due to
insufficient supporting documentation 12 was identified in this program. As such, the majority of
the improper payments were categorized as unknown payments and may or may not equate to
inaccurate payments or monetary losses. The Department is aggressively researching these results
in an effort to develop corrective action plans (CAPs) and institute the internal controls necessary
to ensure complete and accurate supporting documentation.
9
OMB Circular No. A-123, Appendix C defines an “improper payment” as any payment that should not have been made or that
was made in an incorrect amount under statutory, contractual, administrative, or other legally applicable requirements. Incorrect
amounts are overpayments or underpayments made to eligible recipients (including inappropriate denials of payment or service,
any payment that does not account for credit for applicable discounts, payments that are for an incorrect amount, and duplicate
payments). An improper payment also includes any payment that was made to an ineligible recipient or for an ineligible good or
service, or payments for goods or services not received (except for such payments authorized by law). Additionally, when an
agency's review is unable to discern whether a payment was proper as the result of insufficient or lack of documentation, the
payment must be considered an improper payment.
10 Improper Payments Information Act of 2002 (IPIA), as amended by the Improper Payments Elimination and Recovery
Act of 2010 (IPERA) and the Improper Payment Elimination and Recovery Improvement Act of 2012 (IPERIA)
11 The Independent Auditor’s Report on the DoD FY 2018 and FY 2017 Basic Financial Statements issued by the Office of the
Inspector General identified a material weakness related to the Universe of Transactions because “DoD components were unable
to validate the completeness of the universe of transactions underlying their financial statements.” Past improper payment audits
identified similar weaknesses attributable to the Department’s inability to perform reconciliations to ensure complete and accurate
populations of payments from which to select statistical samples. Once the Department is able to validate the completeness of the
universe of transactions underlying its financial statements, the DoD Payment Integrity program will be able to ensure the
completeness and accuracy of sampled populations. In the interim, the Department is working to strengthen the program by adding
omitted payment populations as it becomes aware of them through internal reviews, self-assessments, and audits.
12 The insufficient supporting documentation errors identified in the Military Pay program resulted from an inability to provide
reviewers of sampled Military Service member entitlements and/or allowances, such as Basic Allowance for Housing (BAH), with
proper supporting documentation. For more information on the types of errors identified, see the Military Pay root causes and
corrective action plan section.

Other Information
Exhibit 9. FY 2019 Estimated Proper and Improper Payments
Of the $1.09 billion in overpayments, underpayments, and technically improper payments due to
noncompliance with statutes or regulations, only $552.79 million was identified as monetary losses. The
$552.79 million estimated total monetary loss represents overpayments only–amounts that should not have
been paid by the Department and in theory can be recovered. This amount was further analyzed and
classified into two subcategories (see Exhibit 10): (1) estimated monetary loss within DoD control
($364.43 million) and (2) estimated monetary loss outside DoD control ($188.36 million). The
$539.15 million estimated total non-monetary loss represents underpayments and amounts paid to the right
recipients and in the right amounts, but did not follow applicable regulations and statutes. Unknown
payments ($7.59 billion) are not reported as monetary or non-monetary losses.
Exhibit 10. FY 2019 Estimated Improper Payments Monetary and Non-Monetary Loss
When improper payments are identified, the relevant DoD Components conduct evaluations to
identify their root causes. CAPs are then developed to mitigate the root causes. The CAPs include
milestones or actions that are to be completed by specific dates. Depending on the complexity of the CAPs,
execution of the plan may occur over multiple fiscal years until the root causes are fully mitigated.

Other Information
The Department continues to improve payment accuracy in all of its programs to ensure the billions
of dollars in federal funds it disburses annually reach the intended recipients in the right amounts and for
the right purposes. Through responsible stewardship and accountability, the Department is committed to
upholding the trust and confidence of the Congress and the American people.
In FY 2019, the Department reported improper payments of $8.68 billion for the following eight
programs (see Exhibit 11):
1. Military Health Benefits: Payments made by the Defense Heath Agency (DHA) to private sector
contractors for delivery of health care services to TRICARE-eligible beneficiaries.
2. Military Pay: Payments made by the Defense Finance and Accounting Service (DFAS) to Active,
Reserve, and National Guard Military Service members for salary, benefits, and other
compensation entitlements.
3. Civilian Pay: Payments made by DFAS to civilian employees for salary, benefits, and other
compensation entitlements.
4. Military Retirement: Payments made by DFAS to military retirees and their surviving spouses and
other family members for pension and/or disability entitlements.
5. DoD Travel Pay: Payments made by DFAS, the Army, the Navy, the Air Force, and the
Marine Corps to Active, Reserve, and National Guard Military Service members and civilian
employees for temporary and permanent travel- and/or transportation-related expenses.
6. Commercial Pay: Payments made by DFAS, the Army, and the Navy to vendors and contractors
for goods and services. It also includes Disaster Relief Funding payments made by the Military
Services and DoD Components under Public Law 115-123. This program does not include
payments for “Transportation of Things” 13 or payments related to government purchase cards.
7. United States Army Corps of Engineers (USACE) Travel Pay: Payments made by USACE to
Active, Reserve, and National Guard Military Service members and civilian employees for
temporary and permanent travel- and/or transportation-related expenses.
8. USACE Commercial Pay: Payments made by USACE to vendors and contractors for goods and
services. It also includes Disaster Relief Funding payments made by USACE under
Public Law 115-123.
13
Transportation of Things payments are expenditures related to the movement of items such as equipment, spare
parts, vehicles, food, clothing, and fuel.

Other Information
Exhibit 11. FY 2019 Total Improper Payments Reported by Program
The information reported in this section complies with the guidance provided in
OMB Circular No. A-123, Appendix C and OMB Circular No. A-136. This section provides required
information that demonstrates the Department’s commitment to reducing improper payments. For
additional information on improper payments not included in this report, please refer to
PaymentAccuracy.gov.
This section reports detailed information on the following improper payment requirements:
I. Payment Reporting
II. Recapture of Improper Payments Reporting
III. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative
IV. Accountability
V. Agency Information Systems and Other Infrastructure
VI. Sampling and Estimation
VII. Risk Assessment

Other Information
I. Payment Reporting
Exhibit 12 reports the estimated amount of payments that were properly paid (PP), improperly paid (IP), and the corresponding percentages
of each by program for FY 2019. It also reports the estimated amount of improper payments that resulted in overpayments, underpayments, unknown
payments, and technically improper payments due to noncompliance with statutes or regulations in FY 2019.
Exhibit 12. FY 2019 Estimated Improper Payment

($ in millions)
FY 2019 FY 2019 FY 2019 FY 2019

FY 2019 FY 2019 FY 2019 FY 2019 FY 2019 Month
IP Unknown- FY 2019 Technically Technically Month
Outlays PP Amount PP Rate IP Rate Underpayments and Year
Amount FY 2019 FY 2019 FY 2019 Payments Unknown- Improper Improper and Year
Program Name ($M) ($M) (%) (%) Rate (%) Start
($M) Overpayments Overpayments Underpayments ($M) Payments due to due to End Date
Date for
($M) Rate (%) ($M) Rate (%) Statute or Statute or for Data
Data
Reg ($M)12 Reg (%)12
Military Health Benefits1,2 $ 23,685.24 $ 23,273.79 98.26% $ 411.45 1.74% $ 188.36 0.80% $ 146.35 0.62% - - $ 76.74 0.32% Aug-2017 Oct-2018
Military Pay3 102,742.39 95,292.13 92.75% 7,450.26 7.25% 43.89 0.04% 28.12 0.03% 7,374.48 7.18% 3.77 0.00% Oct-2017 Sep-2018
Civilian Pay4 66,980.02 66,883.34 99.86% 96.69 0.14% 96.69 0.14% - - - - - - Aug-2018 Jul-2019
Military Retirement5 71,572.63 71,285.26 99.60% 287.37 0.40% 142.19 0.20% 106.89 0.15% 33.82 0.05% 4.48 0.01% Aug-2018 Jul-2019
DoD Travel Pay6 7,700.69 7,334.20 95.24% 366.49 4.76% 61.54 0.80% 14.17 0.18% 179.98 2.34% 110.80 1.44% Aug-2018 Jul-2019
Commercial Pay7, 8 315,096.92 315,077.66 99.99% 19.25 0.01% 19.24 0.01% 0.01 0.00% - - - - Jul-2018 Jun-2019
USACE Travel Pay9 237.33 236.43 99.62% 0.90 0.38% 0.88 0.37% 0.02 0.01% - - - - Jul-2018 Jun-2019
USACE Commercial Pay10,11 20,401.52 20,353.71 99.77% 47.81 0.23% - - - - - - $ 47.81 0.23% Jul-2018 Jun-2019
TOTAL $608,416.74 $599,736.52 98.57% $8,680.22 1.43% $ 552.79 0.09% $ 295.55 0.05% $7,588.28 1.25% $ 243.60 0.04%
Note: Amounts may not sum or calculate exactly due to rounding.
Exhibit 12 Footnotes:
1
DHA reports data 12 months in arrears. The sample populations for the Military Health Benefits program is comprised of ten sub-programs. Of these transactional
data samples (outlays), 99% fall within the period October 2017 to September 2018; the remaining samples are from periods falling between August 2017 and
October 2018. DHA’s staggered sampling time frames are the result of the various TRICARE purchased care contract option year start work dates that are defined
to represent external independent contractor (EIC) quarterly or semi-annual sampling time frames.
2
FY 2019 outlays are the sum of the dollars paid for civilian health care by private sector contractors to health care providers and/or TRICARE beneficiaries.
These payments are reviewed by an EIC on a quarterly basis. In addition, the FY 2019 outlays also include administrative payments shared among multiple
contractors to administer the TRICARE program and other contracts that are not included in the DHA EIC reviews, but which are subject to internal and external
pre- and post-payment controls. For post-payment evaluations, DHA is in the process of implementing post-payment reviews for one of its sub-programs (DHA's
Administrative costs). The Estimated IP rates for the low dollar reviews of three sub-programs were significantly influenced by informational errors; these claims
were processed and paid correctly, but the contracts were terminated and the Government was unable to obtain timely information from the contractors. Excluding
these errors would lower the Estimated IP rate for these three sub-programs by an average of 0.41%. Overall, the Military Health Benefits Estimated IP rate

Other Information
increased by 1.35% from 0.39% in FY 2018 to 1.74% in FY 2019, and the Estimated IP amount increased by $320.21 million, from $91.24 million in FY 2018 to
$411.45 million in FY 2019.
3
In FY 2019, the Department implemented a revised sampling plan and testing methodology for the Military Pay program, which included the review of Military
Service member entitlements paid with available supporting documentation. The Military Pay outlays population utilized for statistical sampling was tested a year
in arrears, representing payments from October 2017 to September 2018. The Department performed a full key supporting documentation (KSD) review of
entitlements, which constitutes a substantial shift to the sampling and testing methodology from the previous years. As a direct result of the new testing
methodology, the Military Pay Estimated IP rate increased by 6.95% from 0.30% in FY 2018 to 7.25% in FY 2019, and the Estimated IP amount increased by
$7,144.50 million from $305.76 million in FY 2018 to $7,450.26 million in FY 2019. However, approximately 99% of FY 2019 IPs identified were due to missing
or insufficient documentation.
4
In FY 2020, the Department will implement a revised sampling plan and testing methodology for the Civilian Pay program, which will include an examination
of KSDs for entitlements paid to civilian employees, to verify the accuracy and eligibility of pay allowances. As a result of this new sampling plan and testing
methodology, the Department anticipates the Estimated IP rate and Estimated IP amount in FY 2020 to be different than those reported for FY 2019.
5
Based on the confidence intervals in FY 2018 and FY 2019, there is no statistical evidence of an increase or decrease in IPs between the two years. In FY 2018,
the Military Retirement program Estimated IP rate and amount were 0.45% and $314.44 million, respectively, compared to 0.40% and $287.37 million in FY 2019.
6
The DoD Travel Pay program reports travel payments disbursed for the period August 2018 to July 2019 by DFAS, the Military Services, and Army Outside the
Continental United States (OCONUS) offices. Based on the confidence intervals in FY 2018 and FY 2019, there is no statistical evidence of an increase or decrease
in IPs between the two years. In FY 2018, the Travel Pay program estimated IP rate and amount were 4.59% and $365.32 million, respectively, compared to 4.76%
and $366.49 million in FY 2019.
7
The Commercial Pay program reports commercial payments disbursed for the period July 2018 to June 2019 by DFAS, the Army, and the Navy. It also includes
Disaster Relief Funding payments made by the Military Services and defense agencies under Public Law 115-123. With the exception of Army Outside the
Continental United States office disbursements, for which a different 12 month sampling timeframe (August 2018 to July 2019) was used in FY 2019 to test
commercial vendor service payments. Based on the confidence intervals in FY 2018 and FY 2019, there is no statistical evidence of an increase or decrease in IPs
between the two years. In FY 2018, the Commercial Pay program Estimated IP rate and amount were 0.01% and $15.03 million, respectively, compared to 0.01%
and $19.25 million in FY 2019. The Commercial Pay program is reported as the DFAS Commercial Pay program on PaymentAccuracy.gov.
8
The Commercial Pay program is comprised of payments made by DFAS, the Army, and the Navy to vendors and contractors for goods and services. This program
does not include payments for the “transportation of things” or payments related to government purchase cards. Title 31, United States Code, section 3726
(31 U.S.C. §3726) gives the General Services Administration (GSA) the authority and responsibility to audit and settle all federal payments for transportation of
things. The GSA Transportation Audits Division conducts post-payment audits on all transportation payments (and supporting documentation) provided by the
Department. GSA reviews DoD transportation payments for overcharges only. GSA finances their post-payment audit contract and audit-related functions with
overpayments collected from the transportation payments previously paid by the Department and other federal agencies. GSA reported the following data related
to DoD transportation payments for the 12 month period of July 2018 to June 2019: Total Number of Transactions Submitted by the Department = 209.66 million;
Total Value of Transactions Submitted by the Department = $6,033.15 million; Total Number of Overcharges Collected by GSA = 0.03 million; and Total Value
of Overcharges Collected by GSA = $10.43 million. Based on the data provided by GSA, the FY 2019 overpayment rate for DoD Transportation payments was

Other Information
0.17%, a decrease of 0.06% compared to 0.23% in FY 2018, and the FY 2019 overpayment amount was $10.43 million, an increase of $1.11 million compared to
$9.32 million in FY 2018. The GSA reported results are not included in the FY 2019 Commercial Pay IP amounts.
9
The USACE Travel Pay program Estimated IP rate decreased by 0.08%, from 0.46% in FY 2018 to 0.38% in FY 2019. The Estimated IP amount decreased by
$0.33 million, from $1.23 million in FY 2018 to $0.90 million in FY 2019. Based on the confidence intervals in FY 2018 and FY 2019, there is no statistical
evidence of an increase or decrease in IPs between the two years.
10
The Estimated IP rate for USACE Commercial Pay increased by 0.15%, from 0.08% in FY 2018 to 0.23% in FY 2019, and the Estimated IP amount increased
by $32.77 million, from $15.04 million in FY 2018 to $47.81 million in FY 2019. The increase is due to receipt of significant supplemental funding, resulting in
increased risk of improper payments associated with a high volume of contract actions occurring in dispersed locations, some remote, under tightened deadlines.
Based on the confidence intervals in FY 2018 and FY 2019, there is no statistical evidence of an increase or decrease in IPs between the two years.
11
The USACE Commercial Pay program includes Disaster Relief Funding payments made by USACE under Public Law 115-123.
12
Technically improper due to statute or regulation represents a payment made to the right recipient for the right amount but the payment process failed to follow
applicable regulations or statutes.
U.S. Air Force Capt. Andrew “Dojo” Olson, F-35 Demonstration Team pilot and commander, performs a dedication pass during
the Melbourne Air and Space Show in Melbourne, Fla., March 30, 2019.
U.S. Air Force photo by Senior Airman Alexander Cook

Other Information
Exhibit 13 reports the estimated improper payments and improper payment classifications (i.e.,
estimated monetary, non-monetary, and unknown amounts) and their respective percentages by program.
Monetary loss to the Department represents overpayments such as duplicate payments or amounts that
should not have been paid and can be recovered. Non-Monetary loss represents underpayments and
technically improper payments due to noncompliance with statutes or regulations. Unknown represent
payments with insufficient supporting documentation available at the time of the post payment review in
which the Department is unable to confirm if the payment was proper.
Exhibit 13. FY 2019 Improper Payment Classification (Monetary Loss and Non-Monetary Loss, and Monetary Loss
Control)
($ in millions)
Estimated
FY 2019 Estimated Estimated Estimated Estimated Estimated
Total FY 2019
IP Total FY 2019 FY 2019 Total FY 2019 FY 2019 Total FY
Unknown-
Amount Monetary Loss Monetary Loss Non-Monetary Non-Monetary 2019
Program Name Payments to
($M) to the to the Loss to the Loss to the Unknown-
the
Department Department Department Department Payments
Department
($M) (%) ($M) (%) (%)
($M)
Military Health Benefits $ 411.45 $ 188.36 45.78% $ 223.09 54.22% - -
Military Pay 7,450.26 43.89 0.59% 31.89 0.43% 7,374.48 98.98%
Civilian Pay 96.69 96.69 100.00% - - - -
Military Retirement 287.37 142.19 49.48% 111.36 38.75% 33.82 11.77%
DoD Travel Pay 366.49 61.54 16.79% 124.97 34.10% 179.98 49.11%
Commercial Pay 19.25 19.24 99.93% 0.01 0.07% - -
USACE Travel Pay 0.90 0.88 98.00% 0.02 2.00% - -
USACE Commercial Pay 47.81 - - 47.81 100.00% - -
TOTAL $8,680.22 $ 552.79 $ 539.15 $ 7,588.28

U.S. Army Spc. Brent Garlic, retired, participates in the Wheelchair Basketball Prelim event of the Department of Defense Warrior Games
competition at The Tampa Convention Center in Tampa, Fla., June 24, 2019.
U.S Army photo by Pfc. Dominique Dixon

Other Information
Exhibit 14 reports the FY 2020 estimated outlays, improper payment amounts, and OMB approved
future year reduction target improper payment rates by program.
Exhibit 14. FY 2019 Improper Payment Out Year Projections
($ in millions)
FY 2020 FY 2020 FY 2020

Program Name Est. Outlays Est. IP Amount Est. IP Rate
($M) ($M) (%)
Military Health Benefits1 $ 24,727.39 $ 187.93 0.76%

Military Pay 2
105,259.81 - -
Civilian Pay2 72,818.50 - -
Military Retirement 73,847.60 295.39 0.40%
DoD Travel Pay3 7,354.11 397.12 5.40%
Commercial Pay4 339,111.37 20.72 0.01%
USACE Travel Pay5 253.66 0.92 0.36%
USACE Commercial Pay 6
21,475.87 49.39 0.23%
TOTAL $ 644,848.30 $ 951.49 0.15%
1
DHA established its FY 2020 estimated IP rate of 0.76% based on a trend of sampled IP data from the four most
recent full fiscal years.
2
The Department is not able to estimate an IP rate and an estimated IP amount for the Military Pay and Civilian Pay
programs for FY 2020 since the Military Pay program implemented a new sampling and testing methodology in
FY 2019 and the Civilian Pay program will implement a new sampling and testing methodology in FY 2020. Changes
to both the Military Pay and Civilian Pay programs mark a substantial shift in the review of these programs. As a
result, a baseline has not been established for these programs to generate a future estimate. The Department will be
able to estimate an IP rate and an IP amount for the Military Pay program in FY 2021 and for the Civilian Pay program
in FY 2022.
3
The DoD Travel Pay IP rate has fluctuated significantly over the past four fiscal years, though numerous corrective
actions have been implemented to reduce IPs in this program. However, the Department will continue to estimate
future year IP target rates based on the average IP rates reported in the previous four fiscal years until a more consistent
baseline is established. The average IP rate for this program based on the rates reported from FY 2016 to FY 2019 is
5.40%. As such, the Department is confident that 5.40% is an achievable target rate. The FY 2020 rate for the DoD
Travel Pay program is therefore estimated to be 5.40%. This rate is 0.35% lower than the target rate of 5.75% that
was projected for FY 2019.
4
The Department has reported IP rates of less than one percent for the Commercial Pay program. Since the rates have
been very low, the Department is unable to measure a statistically valid difference between the IP rates and the future
year reduction targets for this program.
5
FY 2020 estimated IP rate for USACE Travel Pay equals the FY 2019 estimated IP rate minus twenty percent (20%)
of the difference between the FY 2019 estimated IP rate and the FY 2018 estimated IP rate.
6
The FY 2020 Estimated IP rate for USACE Commercial Pay equals the FY 2019 IP rate.

Other Information
Exhibit 15 reports the root causes of overpayments, underpayments, unknown payments, and technically improper payments due to
noncompliance with statutes or regulations by amount and program for FY 2019.
Exhibit 15. FY 2019 Improper Payment Root Cause Category Matrix
($ in millions)
Administrative or Process Administrative or Process Inability to Authenticate

Insufficient Documentation to Program Design or
Errors Made by: Federal Errors Made by: Other Party Eligibility: Medical Necessity
Program Name Payment Type Determine Structural Issue TOTAL
Agency 1 Inability to Access Data ($M)
($M) ($M)
($M) ($M) ($M)
Overpayments $ 182.52 $ 5.29 $ 0.55 $188.36
Military Health Benefits 2

Underpayments 146.34 0.01 146.35
Unknown Payments -
Technically Improper due to Statute or Reg $ 76.74 76.74

Overpayments $ 43.89 43.89
Military Pay 2
Underpayments 28.12 28.12
Unknown Payments $ 7,374.48 7,374.48
Technically Improper due to Statute or Reg 3.77 3.77
Overpayments 96.69 96.69
Civilian Pay Underpayments -
Unknown Payments -
Technically Improper due to Statute or Reg -

Military Retirement2 Underpayments 106.89 106.89
Unknown Payments 33.82 33.82

DoD Travel Pay2 Underpayments 14.17 14.17
Unknown Payments 179.98 179.98
Commercial Pay Underpayments 0.01 0.01
Unknown Payments -
USACE Travel Pay Underpayments 0.02 0.02
Unknown Payments -
USACE Commercial Pay Overpayments -
Underpayments -
Unknown Payments -
Total $ 7,588.28 $ 513.62 $ 328.86 $ 243.60 $ 5.30 $ 0.55 $ 8,680.22
1
"Other Parties" includes participating lenders, health care providers, and any other organizations administering federal dollars.
2
The Military Health Benefits, Military Pay, Military Retirement, and DoD Travel Pay programs were determined to be susceptible to significant improper
payments in accordance with OMB Circular No. A-123, Appendix C.

Other Information
Root Causes and Corrective Action Plans for Programs Susceptible to Significant Improper Payments (IPs
Exceeding $100 million)
When significant improper payments are identified in a program through testing, DoD Components
are required to determine the root causes and develop CAPs to remediate them. The CAPs are monitored
throughout the year by the DoD Components and the Office of the Under Secretary of Defense
(Comptroller) (OUSD(C)) to ensure milestone dates are completed on a timely basis. The implementation
and effectiveness of corrective actions are evidenced through the subsequent improper payment testing
results for the program. Based on testing performed on the eight programs in FY 2019, four programs
(Military Health Benefits, Military Pay, Military Retirement, and DoD Travel Pay) were estimated to have
made improper payments in excess of $100 million and were therefore required to develop and disclose
CAPs. OUSD(C) continued to work with DoD Components to strengthen the CAPs for these programs by
reinforcing measurable and effective milestones to ensure that the corrective actions achieved the desired
results.
The following information relates to overpayments, underpayments, unknown payments, and
technically improper payments due to noncompliance with statutes or regulations as well as root causes and
corrective actions summarized and described at the DoD consolidated level. Individual DoD Component
CAPs and target completion dates are maintained and monitored by the DoD Components and OUSD(C).
The Ohio-class fleet guided-missile submarine USS Florida (SSGN 728) sails in the
Mediterranean Sea Aug. 27, 2019.
U.S. Navy photo by Mass Communication Specialist 2nd Class Jonathan Nelson

Other Information
Military Health Benefits

In FY 2019, the estimated improper payments for the Military Health Benefits program were
$411.45 million (see Exhibit 16). This estimate was based on a sampling methodology with a 95%
confidence level, which equated to a 1.74% (+/- 0.3) improper payment rate and an estimated proper
processing rate of 98.26%. The estimated improper payments increased by $320.21 million, from
$91.24 million in FY 2018 to $411.45 million in FY 2019. The increase is primarily the result of DHA
transitioning the administration of healthcare services and claims processing services for the TRICARE
health benefits program from three to two regional Managed Care Support Contracts (MCSC) effective
January 1, 2018. While the transition of administration efforts for the new TRICARE 2017 MCSC East
and West regional contracts was successful, the claims processing services for one of TRICARE 2017
MCSC was impacted by significant challenges.
The primary root cause of improper payments in this program was attributed to “Administrative or
Process Errors Made by: Other Party” (e.g., participating lender, health care provider, or any other
organization administering federal dollars), which accounted for $328.86 million (79.93%) of the
program’s improper payments. The second major root cause of improper payments was Program Design
or Structural Issue, which accounted for $76.74 million (18.65%) of the program’s improper payments.
Exhibit 16. FY 2019 Military Health Benefits Estimated Improper Payments by OMB Root Cause Category
The majority of errors were the result of TRICARE claims processors making duplicate payments
for previously paid healthcare services or supplies, miscalculating the appropriate hospital reimbursement
rates based on the appropriate TRICARE reimbursement system(s)/methodology, or miscalculating and/or
omitting provider or procedural discounts when making final payment.

Other Information
Exhibit 17. Military Health Benefits Summary Corrective Action Plans
Target Completion
Improper Payment Root Cause Category Corrective Actions
Date
Administrative or Processing Errors  Modify TRICARE purchased care contracts adding requirements January 2021
Made by: Other Party for the contractor to identify and document the root cause of each
& payment error and develop CAPs for the payment errors assessed
during a compliance review.
Program Design or Structural Issue
 Develop Contract Data Requirements List (CDRL) template and January 2021
instructions as part of TRICARE purchased care contract
modifications. The CDRL will require contractors to submit
monthly status reports on established CAPs.
 Develop database or tracking tool to monitor all error assessments January 2021
and corrective actions. The tool will provide information on error
assessments for each claim by TRICARE purchased care contract
and compliance review cycle. The database or tracking tool will
also maintain information on the status of contractor CAPs.
DHA does not deem it to be cost effective to create CAPs for the OMB root cause categories,
“Medical Necessity” and “Inability to Authenticate Eligibility: Inability to Access Data” due to the
immaterial amounts associated with these improper payments. However, DHA private sector contractors
are contractually required to perform the following actions to prevent improper payments:
• Review result findings, formulate an action plan to mitigate error findings, and derive a process to
avoid future improper payments.
• If warranted, modify their claims processing systems to meet the Department's health care policy,
reimbursement, and benefit requirements.
Results of Corrective Actions
DHA began implementing CAPs for the Military Health Benefits program in FY 2019 and the
corrective action procedures are still ongoing. As such, improvements to the program’s improper payment
rate have not yet been realized. DHA anticipates completing the full implementation of CAPs during
FY 2020; results of the corrective actions will be reported in the DoD Agency Financial Report for
FY 2020.
U.S. Navy Gunner’s Mate 1st Class Tatiana Clark, foreground, fires an M4 carbine during a qualification course
aboard the Arleigh-Burke class guided-missile destroyer USS Jason Dunham (DDG 109) in the 5th Fleet Area of
Operations, Nov. 17, 2018.
U.S. Navy photo by Mass Communication Specialist 3rd Class Jonathan Clay

Other Information
A U.S. Marine Corps drill instructor with Alpha Company, 1st Recruit Training Battalion, gives his platoon a command during a final
drill evaluation at Marine Corps Recruit Depot San Diego, Dec. 22, 2018.
U.S. Marine Corps photo by Lance Cpl. Jesula Jeanlouis
Military Pay
In FY 2019, the estimated improper payments for the Military Pay program were $7,450.26 million
(see Exhibit 18). This estimate was based on a sampling methodology with a 95% confidence level, which
equated to a 7.25% (+/- 1.24) improper payment rate and an estimated proper processing rate of 92.75%.
The estimated improper payments increased by $7,144.50 million, from $305.76 million in FY 2018 to
$7,450.26 million in FY 2019.
The primary root cause of improper payments in this program was attributed to Insufficient
Documentation to Determine, which accounted for $7,374.48 million (98.98%) of the program’s improper
payments. The second major root cause of improper payments was Administrative or Process Errors Made
by: Federal Agency, which accounted for $72.01 million (0.97%) of the program’s improper payments
Exhibit 18. FY 2019 Military Pay Estimated Improper Payments by OMB Root Cause Category

Other Information
DoD military pay is a complicated mix of pay entitlements and benefits, used to recruit and retain
Active and Reserve Component Military Service members worldwide. The combination of military payroll
entitlements and eligibility criteria result in very complex compensation arrangements which become
increasingly more complex each year. The intricacy of military pay is evident in the more than 80
entitlement tables required to process over 200 unique pay conditions such as Hazardous Duty Incentive
Pay, Aviation Bonuses, Nuclear Officer Pay, and Hostile Fire Pay/Imminent Danger Pay.
Timing issues coupled with the complexity of entitlement rules dependent on multiple variables
including the number, status, and location of dependents are the most critical elements in determining the
accuracy of pay. A primary driver of pay inaccuracy is the timeliness of entering changes in personnel
status into the military pay systems the longer it takes for a change in status to be recorded, the more
erroneous payments result. Military pay is driven primarily by human resource activities or changes
captured via manual entry into personnel systems, which feed a disbursement system via interface or
additional manual entry. Military pay is also impacted by timely notification (or lack thereof) from Military
Service members regarding changes in status (e.g., dependents).
In FY 2019, the Department implemented a revised sampling plan and testing methodology for the
Military Pay program, which included verification of Military Service member pay and allowances (i.e.,
entitlements) against available supporting documentation. As a result, more extensive reviews were
performed and improper payments resulting from insufficient supporting documentation that were not
detected through previous testing methodologies were identified in FY 2019. The majority of the improper
payments identified for the Military Pay program in FY 2019 resulted from insufficient supporting
documentation and may or may not equate to inaccurate payments or monetary losses to the Department.
In addition to developing CAPs to mitigate the insufficient documentation errors, the Military
Services have also begun implementation of Integrated Personnel and Pay System (IPPS) solutions to
reduce improper payments and accelerate payroll processing time.
U.S. Navy Petty Officer 3rd Class Andrew Mercier builds a fire during jungle survival training during exercise KAMANDAG 2 in Ternate, Cavite,
Philippines, Oct. 2, 2018.
U.S. Marine Corps photo by Sgt. Mackenzie Carter

Other Information
Exhibit 19. Military Pay Summary Corrective Action Plans
Target Completion
Date
Insufficient Documentation to  Based on reviewing supporting documentation for each sample Completed
Determine item, determine improper payment exceptions and report September 2019
exceptions to the DoD Component.
Insufficient Documentation Errors related to
 Determine and document the root causes in a detailed analysis for December 2019
the following entitlements and/or allowances:
each improper payment exception.
 Basic Allowance for Housing
 Develop CAPs to address specific root causes identified for December 2019
 Family Separation Allowance
improper payments attributable to payroll disbursements.
 Overseas Housing Allowance
 Hostile Fire Pay/Imminent Danger Pay
 Execute CAPs and monitor remediation to ensure sustainment September 2020
 Active Duty Pay (Recoupment of
through various internal controls – manual and automated.
Annual Training Pay or Active Duty
Operational Support)
 Drill Pay
Administrative or Process Errors  The Marine Corps continues to enhance its integrated pay and January 2020
Made by the Department personnel system through automation of administrative and
& finance processes and the incorporation of travel into the
Marine Corps Total Force System as well as implementing the
Program Design or Structural Issue
Treasury Disbursing Office Initiative.
Improper payments resulted from the  The Navy is transforming its Manpower Personnel Training and January 2021
following errors: Education (MPT&E) enterprise to meet the future needs of the
Fleet and Sailors and to mitigate the threat to the Navy’s ability to
 Payroll data input errors execute future missions vital to national security. The Navy is
 Untimely updates to payroll records and also establishing a core suite of MPT&E Systems, including the
systems. implementation of an auditable commercial off-the-shelf Navy
Personnel and Pay (NP2) capability implementing the Treasury
Disbursing Office initiative.
 The Air Force is implementing the Air Force Integrated Personnel January 2021
and Pay System (AF-IPPS), a single Total Force military
personnel and pay system, enabling financial auditability and
long-term sustainment.
 The Army’s primary strategy for improving the accuracy, January 2022
effectiveness, and auditability of military pay is focused on the
phased, incremental implementation of the Integrated Personnel
and Pay System-Army (IPPS-A). In conjunction with the phased
implementation of IPPS-A, the Army has initiated a three-prong
strategy for training human resources professionals on military
pay.

In FY 2019, the Department’s corrective actions resulted in an improved standard operating
procedure (SOP) for post-payment reviews of Military Pay accounts. The updated SOP requires reviewers
to verify that Military Service members are eligible for special pay and allowances by validating the
information included in pay accounts with supporting documentation. This improved level of review
enabled the DoD Components to adequately assess the risk of improper payments, identify primary
entitlement drivers of improper payments, and develop more effective corrective actions. The Department’s
new post-payment reviews also resulted in more accurate identification of monetary loss errors, as
reviewers were able to more accurately identify and classify improper payments based on available
supporting documentation rather than relying on established payroll debts to Military Service members.

Other Information
U.S. Air Force Col. Spencer Cocanour, former acting commander of the 24th Special Operations Wing, exits an MC-130H Combat
Talon II during his final military free fall jump at Hurlburt Field, Florida, Sept. 20, 2019. Cocanour is retiring after 24 years of service.
U.S. Air Force photo by Staff Sgt. Rose Gudex
Military Retirement
In FY 2019, the estimated improper payments for the Military Retirement program were
confidence level, equating to a 0.40% (+/- 0.09) improper payment rate and an estimated proper processing
rate of 99.6%.
The primary root cause of improper payments in this program was attributed to Administrative or
Process Errors Made by: Federal Agency, which accounted for $249.08 million (86.67%) of the program’s
improper payments. The second major root cause of improper payments was Insufficient Documentation
to Determine, which accounted for $33.82 million (11.77%) of the program’s improper payments.
Exhibit 20. FY 2019 Military Retirement Estimated Improper Payments by OMB Root Cause Category

Other Information
The majority of the errors were the result of untimely application of Dependency and Indemnity
Compensation offsets, manual and systematic computation errors, insufficient supporting documentation,
and errors in following processing procedures and applying policy changes for Department of Veterans
Affairs’ (VA) waiver awards.
Exhibit 21. Military Retirement Summary Corrective Action Plans
Target Completion
Date
Administrative or Process Errors  Implement a cost refund system change to automate the processing October 2020
Made by the Department of standard or common cost refund accounts. This automation
& effort is expected to reduce the number of technician input errors,
and thus reduce the number of improper payments due to cost
Insufficient Documentation to
refund processing
Determine
&  Update the cost refund workbook to streamline data transfer from October 2020
Program Design or Structural Issue a manual process to automated field population. This will
streamline the process and contribute to a greater level of accuracy,
Errors for retired and annuitant pay (new which should lead to fewer improper payments
annuitants, new retirees, and changed
annuitant account) included:  Implement several New Accounts system change requests to October 2020
reduce the amount of manual processing and eliminate over 50
 Payments made despite insufficient excel workbooks currently in use. Eliminating manual processing
documentation is expected to reduce human errors that result in improper
 Errors in following processing payments. Increase timeliness of processing so that Survivor
procedures and applying policy changes Benefit Plan elections can be established correctly at the start of
for Department of Veterans Affairs retired pay.
waiver awards
 Untimely application of Dependency
and Indemnity Compensation offsets
 Systematic computation errors
 Manual computation errors

In FY 2019, DFAS implemented comprehensive updates in all areas of retired and annuitant
training to more adequately address the complex cases that contributed to the most errors leading to
improper payments. They also redesigned the workload distribution and held additional supplemental
training at the operational level based on performance monitoring, specifically for the complex cases related
to Survivor Benefit Plans and Annuities.
The goal to reduce the improper payment rate from random reviews by 10% was not achieved.
DFAS conducted a strategic mid-year review of their operational processes in an effort to make progress
toward the ultimate goal of less than $100 million in improper payments. As a result of the review, DFAS
concluded they needed to alter their FY 2018 CAP to better posture their operations towards reducing
improper payments.

Other Information
A U.S. Marine with the 24th Marine Expeditionary Unit (MEU) carries cold weather equipment as
he begins to march across the Icelandic terrain October 19, 2018.
U.S. Air Force photo by Capt. Kylee Ashton
DoD Travel Pay

In FY 2019, the estimated improper payments for the DoD Travel Pay program were
confidence level, which equated to a 4.76% (+/- 0.37) improper payment rate and an estimated proper
processing rate of 95.24%.
The primary root cause of improper payments in this program was attributed to Insufficient
Documentation to Determine, which accounted for $179.98 million (49.11%) of the program’s improper
payments. The second major root cause of improper payments was Program Design or Structural Issue,
which accounted for $110.80 million (30.23%) of the program’s improper payments.
Exhibit 22. FY 2019 Travel Pay Estimated Improper Payments by OMB Root Cause Category
The errors resulted from invalid or incorrect receipts for expenses, unsigned vouchers or claims for
Reimbursement for Expenditures on Official Business, no receipts provided for expenses, meal rates paid
incorrectly, and incorrect payments of Permanent Change of Station-related expenses.

Other Information
Exhibit 23. DoD Travel Pay Summary Corrective Action Plans
Target Completion
Date
Insufficient Documentation to  The Navy DTS project management office updated the current AO Completed
Determine checklist to include specific checks to ensure valid receipts are March 2019
submitted for specific expense types (airfare, lodging, and car).
The AO checklist was made available on the Navy Supply
Improper payments resulted from the
Systems Command website and distributed to all Navy Defense
following types of inability to verify the
Travel Administrators and AOs.
accuracy of payments:
 Draft a standard sampling plan for use by Army OCONUS paying November 2019
 Invalid and/or inadequate
offices for inclusion of site-specific details.
documentation (i.e., receipts) to verify
travel related expenses reimburses
 The Defense Travel Management Office will make modifications March 2020
 Lack of supporting documentation
to DTS to include additional capabilities for receipt verification.
provided to determine if travel expenses
DTS will be able to detect when support documentation (e.g.,
are allowable based on established
receipt) is required for an expense and, if not included, will
policies
prevent the user from submitting the voucher or the AO from
 Lack of sampling plan and/or execution
approving the voucher. This additional capability is anticipated to
of sampling plan for Army Outside the
greatly reduce the majority of improper payments due to missing
Continental United States (OCONUS)
supporting documentation.
disbursement offices to accurately
evaluate, monitor, and measure
improper payments.
Program Design or Structural Issue  DFAS updated the post pay database to consolidate the Travel Pay Completed
& reviews with corresponding results to provide DoD leadership September 2019
Administrative or Process Errors with timely information on payments errors identified, root
causes, and recovery of funds.
Made by: Federal Agency
 DFAS established a review forum for post payment reviewers and Completed
Improper payments resulted from the Travel Pay operations personnel to discuss and implement a September 2019
following errors: common policy in computing, establishing policy, or conducting
reviews.
 Inaccurate Permanent Change of
Station (PCS)-related expense  The Air Force implemented a Defense Travel System (DTS) and Completed
reimbursement Reserve Travel System root cause analysis process focusing on September 2019
 Voucher errors and incomplete data payment errors identified during post pay reviews to determine
provided by the traveler needed governance changes, training requirements, performance
 Traveler and/or Approving Official evaluations, and possible pecuniary liability actions for AOs.
(AO) did not sign travel related
documentation (e.g., Travel Voucher)  Complete the Travel Pay improper payment remediation plans December 2019
that account for approximately 95% of the Department’s travel
pay disbursements processed in the DTS. This includes
establishing milestones, monitoring progress, and holding DoD
Components accountable for their completion.
 Implement continuous training programs for PCS that include April 2020
performance assessments of various disbursement locations to
identify travel payment errors and root causes for known improper
payments. The training program will emphasize accuracy,
timeliness, and effective travel voucher review procedures (i.e.,
preventive measures) for the traveler, Command Pay/Personnel
Administrator, and AO to incorporate prior to submitting the
voucher for processing.

In FY 2019, the Department’s corrective actions resulted in the calculation of the Travel Pay
improper payment estimate using a complete population, to include travel payments made by the Army
266th Financial Management Support Center (FMSC). In FY 2018, the Army 266th FMSC did not
complete their travel improper payment reviews because a rotational policy in Europe resulted in high
turnover and limited personnel resources. Moreover, DoD remediation efforts continue to reduce improper
travel payments (i.e., approximately 2.5% since FY 2016), and this program met its improper payment goal
rates of 6.0% in FY 2018 and 5.75% in FY 2019.

Other Information
II. Recapture of Improper Payments Reporting

When IPERA was passed in 2010, the Department awarded several contracts to identify and recover
improper payments. Recovery auditors would be paid only on a contingency basis and only after funds
were recovered. However, in most cases the private sector firms were not able to establish an adequate
profit margin; consequently, the firms asked that the contracts be terminated. Based on historical
experience with the use of contingency contracts to recover outstanding overpayments, the Department
determined this type of effort was not cost effective.
The Department performs three separate and distinct activities that can result in the collection of
amounts improperly paid to the recipient. Collection of these amounts is often referred to as “payment
recapture.” The three activities performed by the Department are:
1. Testing payments selected in statistical samples under OMB Circular No. A-123, Appendix C
(IPERA Testing);
2. Testing under the requirements of OMB Circular No. A-123 (Enterprise Risk Management and
Internal Control Program (ERM/ICP) Control Activities); and
3. Payment Recapture Audits as defined under OMB Circular No. A-123, Appendix C (Payment
Recapture Audit).
A U.S. Air Force F-16C Fighting Falcon fires flares over the Atlantic Ocean after performing a flyover for the 2019 Atlantic City Airshow, "A Salute To Those That
Serve," on Aug. 21, 2019.
U.S. Air National Guard photo illustration by Senior Master Sgt. Andrew J. Moseley

Other Information
IPERA Testing
Under IPERA Testing, sampled items are tested to identify overpayments or underpayments to
eligible recipients, payments to ineligible recipients, payments for ineligible goods or services, and
payments for goods or services not received. Tests include review of supporting documentation and other
test procedures as applicable. When a review is unable to discern whether a payment was proper as a result
of insufficient or lack of documentation, the payment is considered to be improper.
As part of the Department’s overall system of internal control, individual overpayments identified
in sampled items are reported to the DoD Component where the transaction originated. For example, if
DFAS were performing the IPERA testing for the DoD Travel Pay program and identified an overpayment
involving an Army employee, DFAS would report the overpayment to the Army. The Army would then
contact the impacted employee and agree upon a repayment method consistent with the Army’s debt
management program. In most situations, the repayment would occur through payroll deduction or direct
reimbursement by the employee to the Department for the overpayment.
ERM/ICP Control Activities
The framework of internal controls has five components - Control Environment, Risk Assessment,
Control Activities, Information and Communication, and Monitoring. Within this framework, Control
Activities are the actions management establishes through policies and procedures to achieve objectives
and respond to risks in the system of internal control.
Execution of Control Activities can result in the identification of an overpayment. For example,
an overpayment in the Commercial Pay program may be identified through Control Activities at the DoD
Component level. These overpayments would be subject to collection efforts coordinated between DFAS
and the DoD Component offices responsible for originating the transactions. These collection efforts may
include direct collection from the contractor or offset against the same contract with that contractor.
Payment Recapture Audit
A Payment Recapture Audit is a review and analysis of a program’s accounting and financial
records, supporting documentation, and other pertinent information supporting its payments, and is
specifically designed to identify overpayments. It is not an audit in the traditional sense covered by
Generally Accepted Government Auditing Standards.
As part of their internal controls over payments, federal agencies are required to conduct Payment
Recapture Audits for all programs that expend more than $1 million in a fiscal year if conducting such
audits is cost effective. However, federal agencies may exclude program payments from Payment
Recapture Audits if the agency determines that Payment Recapture Audits are not a cost-effective method
for identifying and recapturing payments. The Department has determined that Payment Recapture Audits
are not a cost-effective repayment capture method for its programs, with the exception of a portion of the
DoD Travel Pay program administered by the Defense Travel Management Office (DTMO).
Currently, the only DoD payment recapture audit is conducted by DTMO as part of the DoD Travel
Pay program. DTMO reviews all travel vouchers for Temporary Duty personnel processed through DTS
using a set of 14 predefined queries designed to identify the most common improper payments.
Individual overpayments identified by DTMO through its Travel Policy Compliance Tool are
reported through automated notifications to locally based Compliance Tool Administrators at the DoD
Component where the travel transaction originated. The DoD Component then contacts the impacted

Other Information
employee and agrees upon a repayment method consistent with the DoD Component’s debt management
program. In most situations, the repayment occurs through payroll deduction or direct reimbursement by
the employee to the Department for the overpayment.
After donning gas masks, U.S. Army paratroopers assigned to Dog Company, 3rd Battalion, 509th Parachute Infantry Regiment, 4th Infantry Brigade Combat Team
(Airborne), 25th Infantry Division, U.S. Army Alaska, engage a target with a M2A1 machine gun during mounted night live-fire training at Joint Base Elmendorf-
Richardson, Alaska, Nov. 16, 2018.
U.S. Air Force photo by Alejandro Peña
Overpayment Capture Reporting

Exhibit 24 reports the results of overpayments recaptured as a result of IPERA Testing and
ERM/ICP Control Activities as “Overpayments Recaptured Outside of Payment Recapture Audits.”
Overpayments recaptured as a result of the DTMO Payment Recapture Audit are reported as
“Overpayments Recaptured Through Payment Recapture Audits.”
Amounts reported as “Overpayments Recaptured Outside of Payment Recapture Audits” in
Exhibit 24 may differ from those reported in Exhibit 12 as “FY 2019 Overpayments” due to timing
differences in reporting, the fact that Exhibit 12 reflects estimates while Exhibit 24 reflects actuals, and
differences in the manner of compilation. Additionally, note that overpayments identified in one fiscal year
may be collected in that fiscal year or in a subsequent fiscal year.

Other Information
Exhibit 24. FY 2019 Payment Recapture Audit Reporting
($ in millions)
Overpayments Recaptured Through Payment Recapture Overpayments Recaptured Outside
Audits of Payment Recapture Audits
Does This Include

Amount Amount Recapture FY 2020 Amount Amount
Funds Recaptured
Identified in Recaptured in Rate in Recapture Identified in Recaptured in
from a High- Program or Activity
FY 2019 FY 2019 FY 2019 Rate Target FY 2019 FY 2019
Priority Program
($M) ($M) (%) (%) ($M) ($M)
(Y/N)1
N Military Health Benefits 2,3, 4 $ 8.95 $ 827.47
5
Y Military Pay 279.39 249.98
N Civilian Pay5 96.60 96.60
N Military Retirement6 72.30 36.60
N DoD Travel Pay7,8,9 $ 5.19 $ 2.51 48% 75% 0.21 0.07
N Commercial Pay - -
N USACE Travel Pay 0.45 0.45
N USACE Commercial Pay 2.60 2.58
TOTAL $5.19 $2.51 48% 75% $460.49 $1,213.75
1
The OMB threshold for designation as a high-priority program for FY 2019 reporting is $2 billion in estimated
improper payments reported by the federal agency, regardless of the improper payment rate estimate.
2
“Amount Identified in FY 2019” represents the total overpayment dollars from sampled claims. These amounts
include recoupments for overpayments identified in audits as well as refunds occurring in the course of routine claim
adjustments. DHA has no way to distinguish overpayment recoupments from routine claim adjustments. "Amount
Recaptured in FY 2019" represents negative TRICARE Encounter Data (TED) record adjustments for overpayments.
3
These amounts include recoupments for overpayments identified in reviews conducted by an external independent
contractor as well as contractor refunds (i.e., negative TED record adjustments) occurring in the course of routine
claim adjustments (for claims initially paid in previous fiscal years). DHA has no way to distinguish overpayment
recoupments from routine claim adjustments.
4
The amount recaptured in FY 2019 for the Active Duty Dental Program (ADDP) represents refunds shown on
contractor invoices to DHA. ADDP data is not included in the TED system, thus contractor invoices were used to
calculate the amount recaptured because TED transactions are not available.
5
The Military Pay program includes both in-service collections (i.e., collections from active employees) and out-of-
service debts (i.e., collections from individuals not actively employed by the Department) in the Amount Recaptured.
The Civilian Pay program includes only in-service collections in the Amount Recaptured.
6
The amounts identified and recaptured for the Military Retirement program are based on a 100% review of deceased
retired and deceased annuitant accounts.
7
“Overpayments Recaptured Outside of Payment Recapture Audits” for the DoD Travel Pay program are
overpayments of paid DTS and Navy Windows Integrated Automated Travel System (WinIATS) vouchers that were
identified by DFAS through their sampling and post-payment review process.
8
The DoD Travel Policy Compliance Program is the only formal payment recapture audit program of the DoD Travel
Pay program and its results are reported “through” payment recapture audits.
9
“Amount Recaptured” includes debts that have been fully collected or are currently in the debt process, such as
payroll deductions.

Other Information
Exhibit 25 reports the actual amount (i.e., not estimated) of overpayments identified and recaptured
outside of payment recapture audits in FY 2019. Note: not all overpayments will be collected in the same
fiscal year that they were made and/or identified. The Department continues to work to improve its methods
to identify, collect, and report improper payments.
Exhibit 25. FY 2019 Overpayments Identified and Recaptured Outside of Payment Recapture Audits
* Amounts do not include Overpayments Recaptured Through Payment Recapture Audits
Exhibit 26 reports the disposition of funds recaptured as a result of payment recapture audits. In
accordance with IPERA requirements, only funding which is expired at the time of collection can be
reallocated.
Exhibit 26. FY 2019 Disposition of Funds Recaptured Through Payment Recapture Audits
($ in millions)
Program or Agency Financial Original Returned to

Payment Office of
Activity Expenses to Management Purpose Treasury
Recapture Inspector Other
Administer Improvement
Auditor Fees General
the Program Activities
DoD Travel Pay $ - $ - $ - $ 2.51 $ - $ - $ -
TOTAL $ - $ - $ - $ 2.51 $ - $ - $ -
Exhibit 27 reports an aging schedule of the amount of overpayments identified through payment
recapture audits that are outstanding (i.e., overpayments that have been identified, but not recaptured).
Identified overpayments were determined to be uncollectible for one of the following reasons: the amount
of the debt is $10 or less; a waiver has been approved; or the amount is an out-of-service debt (i.e., debt
from an individual not actively employed by the Department).
Exhibit 27. Aging of Outstanding Overpayments Identified Through Payment Recapture Audits
($ in millions)
Amount Amount Percent
Program or Activity FY 2019 Amount Amount
Outstanding determined determined
Remaining Outstanding Outstanding
(6 months to to not be to not be
Unrecovered (0 – 6 months) (over 1 year)
1 year) collectable collectable
DoD Travel Pay 2.68 0.98 $ 1.70 $ - $ 0.01 0.26%
TOTAL 2.68 0.98 1.70 $ - 0.01


Other Information
III. Agency Improvement of Payment Accuracy with the Do Not Pay Initiative
The Department of Treasury (Treasury) Do Not Pay (DNP) Portal is the legislatively mandated and
OMB-designated source of centralized data analytics services to help federal agencies verify eligibility for
payment. Federal agencies interface with Treasury’s centralized data to achieve a higher degree of certainty
that a payee is legitimate and eligible before making a payment. All payments that are identified to be
potentially improper are then adjudicated and either paid or not paid. Improper payments, however, may
still occur at some later point due to reasons that the DNP Portal cannot detect or prevent.
The Department uses the online search, payment integration, and batch matching features of DNP.
Ninety nine percent of the flagged payees are based on the Death Master File and the name match results
from the rest of the DNP databases (e.g., System for Award Management). The Department researches all
payments that are identified to be potentially improper. Research has determined that the majority of these
match results are false positives (e.g., a vendor’s tax identification number being matched to a deceased
individual’s social security number). The remaining 1% are deemed proper based on established business
rules related to contracts terms and vendor performance. The Department has adjudicated and deemed
proper all potential improper payments identified using the DNP Portal. The DNP initiative has not reduced
DoD improper payments.
A Bell UH-1 Iroquois Helicopter, nicknamed the “Huey”, takes off amidst an explosion during a reenactment of a Vietnam era combat search and rescue mission
performed by Cavanaugh Flight Museum at Joe Foss Field, South Dakota, August 18, 2019.
U.S. Air National Guard photo by Staff Sgt. Jorrie Hart

Other Information
IV. Accountability
The Department recognizes the difficulty of any single official exercising direct personal control
over all aspects of each business transaction. Therefore, the Department relies on automated systems,
manual controls, and accountable officials to ensure accountability of government funds, including the
accuracy, propriety, and legality of payments. The Under Secretary of Defense (Comptroller)/Chief
Financial Officer (USD(C)/CFO) is the Accountable Official for the Department and is responsible for
ensuring that, to the greatest extent possible, all DoD payments are accurate.
The Department adheres to 10 U.S.C. §2773(a), which holds Departmental Accountable Officials
(DAOs) and Certifying Officials (COs) accountable for government funds. DAOs and COs are subject to
pecuniary liability for an illegal, improper, or incorrect payment. This law forms the basis of the DoD
Financial Management Regulation (DoD FMR), Volume 5, Chapter 5, which addresses: the selection,
appointment, responsibilities, and qualifications for certifying officers; certification of vouchers for
payment; DAOs; random review of disbursement vouchers; and pecuniary liability. Moreover, the
Department’s efforts to recover overpayments are administered in accordance with the debt collection
policy in DoD FMR, Volume 16.
The DoD FMR also contains chapters that specifically address improper payments (i.e.,
Volume 4, Chapter 14) and recovery auditing (i.e., Volume 10, Chapter 22). The Deputy Chief Financial
Officer (DCFO) is the Executive Agent and Senior Accountable Official (SAO) for the DoD Payment
Integrity Program. The DCFO, Director of Financial Management Policy and Reporting, and the Payment
Integrity Program Manager provide oversight to the Payment Integrity Program and are each held
accountable in their performance plans for reducing and recapturing improper payments as well as
achieving compliance with IPERA.
The Department continues to take many proactive steps to hold individuals accountable for the
prevention and reduction of improper payments. In FY 2013, following the DoD Travel Pay program’s
initial year of noncompliance, a Department-wide remediation plan was developed and implemented to
assist the program in meeting its improper payment reduction target rates. By FY 2017, this plan evolved
into an improper payments SAO steering committee, which is responsible for proactive oversight of the
Payment Integrity program, implementing best practices, monitoring performance, and driving actions for
achieving IPERA compliance. This committee, which is comprised of SAOs from across the Military
Services and several other DoD Components 14, is held accountable for reducing and recapturing improper
payments through corrective action plans and progress is monitored and measured through performance
metrics. Moreover, the SAO steering committee helps ensure that improper payment estimates for all
programs are complete and accurate and that program target rates are met.
14 The SAO steering committee includes Senior Executive Service representatives from the following DoD Components and
offices: OUSD(C); Department of the Army; Department of the Navy; Department of the Air Force; United States Marine Corps;
USACE; United States Special Operations Command (USSOCOM); Defense Information Systems Agency (DISA); Defense
Logistics Agency (DLA); Defense Contract Audit Agency (DCAA); Missile Defense Agency (MDA); DFAS; Defense Contract
Management Agency (DCMA); DHA; and the Defense Human Resources Activity (DHRA)/DTMO.

Other Information

DHA continually strives to improve its payment accuracy performance for all its private sector
contracts and ensure that the billions of dollars in federal funds it disburses annually reach intended
recipients in the right amount and for the right purpose. Through responsible stewardship and
accountability, DHA is committed to earning the trust and confidence of Congress and the American people.
TRICARE private sector contractors are monetarily incentivized or dis-incentivized through
contract requirements and TRICARE claims processing performance standards. In addition to quarterly
compliance reviews, MCSCs are subject to annual health care cost reviews. Overpayments identified
during Annual Health Care Costs (AHCC) compliance reviews are extrapolated to the AHCC claims
universe and the MCSC is liable for the extrapolated overpayment error amounts that must be reimbursed
directly to the Government.
DHA-Contract Resource Management (CRM) Government Certifying Officers responsible for
authorizing payments are held accountable as documented in their Performance Plans. Certifying officers
must ensure vouchers prepared for disbursement are correct and comply with the terms of the assigned
contract and the Prompt Payment Act. Certifying Officers are allowed no more than three errors resulting
in an incorrect dollar amount or payee during a rating period. All payments on file must be certified in time
to make scheduled Treasury payment cycles and DHA paying agents must maintain all standard operating
procedures associated with these processes. Performance evaluations are performed annually by the Chief,
CRM Finance Accounting Branch, who annotates and properly addresses any failure to meet performance
requirements.
Military Pay
The Department is committed to ensuring that Military Service members are paid timely and
accurately. To accomplish this important mission, individuals within the Military Pay hire-to-retire process
are held accountable for their respective areas of responsibilities. Military Service members are held
accountable to report their eligibility information as well as any qualifying change of life situations affecting
their pay timely to their Personnel and/or Finance offices. Personnel and/or Finance offices are held
accountable to process Military Service member payroll and benefit documentation accurately and timely
and to ensure the documentation is correctly entered into entitlement systems. Personnel and/or Finance
office employees are required to perform reconciliations on a regular basis and to make timely edits or
updates to a Military Service member’s pay in entitlement systems, as necessary. Management is held
accountable for ensuring that controls are in place to properly capture, record, and approve Military Service
members’ pay and entitlement information. Additionally, management is responsible for reviewing finance
reports, which reflect pay and entitlements paid to Military Service members, and for conducting monthly
internal reviews to compare and reconcile pay and personnel records.
Military Retirement
The DFAS Director of Retired and Annuitant (R&A) Pay is held accountable in a performance plan
for reducing and recapturing improper payments. The DFAS Director of R&A Pay is required, under a
performance plan element of “Internal Controls and Audit Support,” to actively support R&A work group
efforts to reduce improper payments identified by the DFAS Post-pay Review & Analysis and the Reports
& Analysis Enterprise Solutions & Standards – Compliance team. Moreover, executives at
DFAS Cleveland, where R&A Pay is managed, are held accountable to meet established percentage goals
for improper payments through annual performance plan criteria.

Other Information
DoD Travel Pay

The Department is committed to ensuring that all employees, both Military Service members and
civilians, are reimbursed timely and accurately for their travel-related expenses. To accomplish this
mission, individuals within the travel management process are held accountable for their respective areas
of responsibility.
DAOs involved in the travel management process serve as control points within the Department.
Individuals officially appointed as DAOs for the travel process may include reviewing officials, approving
officials, and authorizing officials. If appointed, DAOs are subject to pecuniary liability for illegal,
improper, or incorrect payments resulting from information, data, or services they negligently provide to
COs and upon which the COs relied to certify payment vouchers.
COs are subject to pecuniary liability under 10 U.S.C. §2773(a) and 31 U.S.C. §3528. They are
responsible for certifying travel claims for payment, forwarding certified claims to the supporting
disbursing office, comparing pre-trip and post-trip estimates of expenses, reviewing all lodging receipts,
and reviewing individual reimbursable expense receipts of $75 or more. Responsibilities for individuals
appointed as COs are applicable to both DTS and non-DTS travel claims. COs must be appointed by an
appropriate authority and they must acknowledge their appointment as a CO by signature.
Travelers are held accountable for preparing their vouchers after travel has been completed.
Travelers must provide all supporting documentation including the original (or legible copies of) orders
and receipts for all lodging expenses, as well as claimed reimbursable expenses of $75 or more, to their
DAOs and/or COs. Moreover, travelers are liable under 18 U.S.C. §§287 and 1001 and the False Claims
Act, 31 U.S.C. §§3729-3731, if they knowingly submit false, fictitious, or fraudulent travel claims.
U.S. Army Soldiers assigned to the 10th Special Forces Group (Airborne) conduct an airborne operation near the island of Mont Saint Michel, Avranches
Commune, France, May 18, 2019.
U.S. Army photo by Sgt. Avery Cunningham

Other Information
V. Agency Information Systems and Other Infrastructure

Internal Controls
DHA has internal controls in place to support the reduction of improper payments in the TRICARE
purchased health care program to the levels the DHA has targeted. However, for the FY 2019 AFR
reporting cycle, DHA identified a material weakness as a result of a private sector contractor’s inadequate
claims processing performance. Effective January 1, 2018, and in fulfillment of section 701 of the
National Defense Authorization Act for FY 2017, the DHA implemented sweeping changes to the
TRICARE health benefits structure and MCS contract management to synchronize these changes. As a
result, the DHA transitioned its TRICARE-3 MCSCs (supported by three regional contracts/contractors) to
the TRICARE 2017 contract and regional oversight model (supported by two regional
contracts/contractors).
While the transition of MCSC contracts from three to two was considered a success, the
transitioning of claims processing services under one of the two T2017 MCSC has been met with
challenges. As a result of the contractor’s claims processing performance, DHA’s program and contracting
offices have increased contract oversight and monitoring for this T2017 contractor. The DHA contracting
office has issued a number of Contract Action Requests, while the program office has increased contract
oversight and surveillance efforts. Although the material weakness has had an impact on the DHA Payment
Integrity program, significant progress has been made by the DHA and the MCSC contractor to resolve this
deficiency by the FY 2020 AFR reporting cycle.
Human Capital
Currently, DHA has the human capital it needs to reduce improper payments in the Military Health
Benefits program to the level the Department has targeted. However, as the DHA Payment Integrity
program evolves and as operations change, additional skill sets and personnel resources may be needed to
sustain and advance the program.
Information Systems and Other Infrastructure
DHA has the information systems and other infrastructure it needs to reduce improper payments in
the Military Health Benefits program to the levels the Department has targeted. The Agency Private Sector
program (managed by the Contract Resource Management Division) includes an immense volume of
healthcare claims processed by TRICARE private sector contractors into the TED Operational Data Store.
To track programs, CRM uses the TRICARE Encounter Data Set (TEDS), a financial feeder system through
which claims are processed to Oracle Federal Financials; the E-Commerce System (ECS); and the Oracle
Federal Financials (OFF). The OFF system supports budget and accounting/financial functions and health
care (TEDS) claims processing and contains TRICARE Claims Management, Accounts Receivable,
Accounts Payable, Purchase Orders and General Ledger modules.

Other Information
Military Pay
Internal Controls
The Department has internal controls in place that support the reduction of improper payments in
the Military Pay program to the levels the Department has targeted. However, in FY 2019 there were three
outstanding material weaknesses in the Military Pay hire-to-retire process. The material weaknesses were
identified by the Army and the Navy in FY 2011. Although the material weaknesses have had an impact
on the Payment Integrity Program, significant progress has been made by the Army and the Navy to
remediate them. The Army plans to fully resolve the deficiencies by FY 2020. The Navy reassessed the
material weakness and downgraded it to a significant deficiency, which is anticipated to be completely
resolved in FY 2023. Moreover, OUSD(C) provides ongoing oversight to ensure material weaknesses are
resolved by their target dates and coordination continues between the ERM/ICP and the Payment Integrity
Program.
Human Capital
Currently, the Department has the human capital it needs to reduce improper payments in the
Military Pay program to the levels the Department has targeted. However, as the Military Pay program
evolves and DoD operations change, additional skill sets and personnel resources may be needed to sustain
and advance the program.
The Department has the information systems and other infrastructure it needs to reduce improper
payments in the Military Pay program to the levels the Department has targeted. The primary system
currently used by the Department to process Military Pay is the Defense Joint Military Pay System (DJMS).
DJMS received an unmodified System and Organizational Control (SOC) 1 Type 2 report under Statement
on Standards for Attestation Engagements (SSAE) No. 18 in FY 2019. However, as technology advances,
the Department continues to improve the accuracy and efficiency of Military Pay through implementation
of new payroll and entitlement processing systems and enhancements to existing systems.
Navy Seaman Gabriel George uses his teeth to draw a bow during the archery finals at the 2019 Department of Defense Warrior
Games in Tampa, Fla., June 25, 2019.
DoD photo by EJ Hersom

Other Information
Military Retirement
Internal Controls
The Department has internal controls in place to support the reduction of improper payments in the
Military Retirement program to the levels the Department has targeted. As part of the internal control
framework for this program, the DFAS Director of R&A Pay has identified and documented known risks
associated with the processes for providing pay services to the customers of the Military Retirement
program. Along with identifying these risks by process, the Director of R&A Pay instituted key controls
and control activities to mitigate the documented risks. The Director also tests the controls to ensure their
effectiveness and documents the test results. In addition, OUSD(C) is committed to the coordination of
activities between the ERM/ICP and the Payment Integrity Program to leverage best practices in internal
controls.
Human Capital
Currently, the Department has the human capital it needs to reduce improper payments in the
Military Retirement program to the levels the Department has targeted. However, as the Military
Retirement program evolves and DoD operations change, additional skill sets and personnel resources may
be needed to sustain and advance the program.
payments in the Military Retirement program to the levels the Department has targeted. As technology
advances, the Department continues to consider improving the accuracy and efficiency of Military
Retirement through implementation of new retiree and annuitant pay systems and enhancements to existing
systems.
U.S. Secretary of Defense Dr. Mark T. Esper presents a U.S. flag to WWII veteran Herman Zeitchik and his family at the Pentagon, Washington, D.C.,
Aug. 29, 2019.
DoD photo by U.S. Navy Petty Officer 2nd Class James K. Lee

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DoD Travel Pay

Internal Controls
The Department has the internal controls in place to support the reduction of improper payments in
the DoD Travel Pay program to the levels the Department has targeted. In addition, OUSD(C) is committed
to the coordination of activities between the ERM/ICP and the Payment Integrity Program to leverage best
practices in internal controls.
Human Capital
Currently, the Department has the human capital it needs to reduce improper payments in the DoD
Travel Pay program to the levels the Department has targeted. However, as the DoD Travel Pay program
evolves and DoD operations change, additional skill sets and personnel resources may be needed to sustain
and advance the program.

payments in the DoD Travel Pay program to the levels the Department has targeted. The primary system
currently used by the Department to process travel payments is DTS. DTS received an unmodified SOC 1
Type 2 report under SSAE No. 18 in FY 2019. However, as technology advances, the Department
continues to consider ways to improve the accuracy and efficiency of travel pay through implementation of
new travel and entitlement processing systems and enhancements to existing systems.
U.S. Marine Corps Lance Cpl. Donovan Massieperez, a reproduction specialist with Headquarters Battalion, 3rd Marine Division, exits the training
helicopter body during Underwater Egress Training (UET), at Camp Hansen, Okinawa, Japan, on March 14, 2019.
U.S. Marine Corps photo by Lance Cpl. Christine Phelps

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VI. Sampling and Estimation

The primary disbursing DoD Components use statistically valid and rigorous methods that are
designed to meet or exceed OMB’s requirements of a 95% confidence level and a margin of error of
+/- 3.0%. By using these methods, disbursing DoD Components are able to identify valid sample sizes and
project improper payment percentages for the Department’s Payment Integrity Program. The smaller
disbursing DoD Components normally perform 100% post-payment reviews or a full review of payments
above a specific dollar threshold, with random sampling for lower dollar payments.
The DHA reports improper payment data one year in arrears, thus the FY 2019 Sampling
Methodology represents FY 2018 Purchased Health Care Costs. The DHA followed OMB
Circular No. A-123, Appendix C, dated October 20, 2014, when developing its sampling plan for FY 2018
disbursements. The Circular required sampling to be performed at the 90% confidence level with a margin
of error of ±2.5%. The OMB approved DHA’s sampling plan because it met these requirements.
On June 26, 2018, the OMB published a revised Appendix C to Circular A-123, which changed the
parameters of a “statistically valid” sampling plan from a 90% to a 95% confidence level, stating that the
change was effective starting in FY 2018. Since DHA’s sampling activities were nearly completed by the
time the updated guidance was released, the OMB provided approval and confirmation that DHA’s
sampling plan was still statistically valid under the revised Appendix C guidance. To clearly meet the
updated OMB Circular No. A-123, Appendix C guidance, the DHA revised its sampling methodology for
FY 2019 (to be reported in FY 2020) to reflect 95% confidence with a margin of error of ±2.5%.
DHA’s FY 2018 payment integrity samples were designed as a post-payment review following
stratified sampling on payment amounts, by contract. Strata boundaries were determined via the
Cumulative Square Root Frequency method. Sample sizes were calculated to yield estimates with 90%
confidence plus or minus 2.5% margin of error (if additional resources were available, these parameters
were reduced to plus or minus as little as 1.0 percentage point to result in a larger sample size, to increase
the likelihood that the samples met precision targets). Records within every stratum were selected with
equal probability, and database software was utilized to randomly select records to be sampled.
On a quarterly basis, DHA sampled records for the managed care contracts (except for ADDP,
which was sampled on a semi-annual basis). Records were stratified by contractor and paid amount for
non-denied claims, and billed amount for denied claims. Additionally, an annual low-dollar review was
performed on each contract to represent claims which were excluded from quarterly and semi-annual
reviews due to low paid amounts. Results from all the reviews were combined to derive a complete fiscal
year payment error rate for these contracts.
DHA’s Administrative costs were reviewed for prepayment accuracy every year since FY 2009.
DHA is in the process of implementing a post-payment review process (expected to be completed by
FY 2021). The post-payment review will stratify these costs by payment type and amount.
Military Pay
DFAS designed the program samples using a dollar-stratified sampling plan and the Neyman
Allocation method. The Neyman Allocation method stratifies financial data from DJMS and the
Marine Corps Total Force System and allocates the data to defined strata. The overall variable sample size
was calculated for the combined systems to produce a point estimate with a 95% confidence interval and a

Other Information
margin of error of +/- 2.5%. Samples were then randomly selected using statistical software from each
system’s population as a whole. Each payment within each stratum had an equal probability of selection.
On a monthly basis, DFAS statistically sampled Military Pay accounts stratified by Active Duty
(i.e., Army, Navy, Air Force, and Marine Corps) and Reserve Components (i.e., Army Reserve, Army
National Guard, Navy Reserve, Air Force Reserve, Air National Guard, and Marine Corps Reserve), and
further stratified by the dollar amount of disbursements. The Defense Management Data Center provided
the total universe of Military Pay accounts for each Military Service. DFAS reviewed the sampled pay
accounts and calculated estimates of improper payments.
In FY 2019, based on a recommendation made by the Government Accountability Office (GAO)
in Report No. GAO-18-377, the Department revised its post-payment review procedures for this program
to include verification of Military Service members pay and allowances with sufficient supporting
documentation.
Military Retirement
On a monthly basis, DFAS statistically sampled Military Retirement payments stratified by retired
and annuitant pay accounts. The reviews contained samples of drilling Reserve units, retiree offsets,
survivor benefit plans, transfers to/from the Temporary Disability Retired List to the Permanent List, and
Veterans Affairs offsets. The overall variable sample size was calculated to produce a point estimate with
a 95% confidence interval and a margin of error of +/- 2.5%.
DoD Travel Pay
DFAS designed the program samples using a dollar-stratified sampling plan and the Neyman
Allocation method. The Neyman Allocation method stratifies financial data from DTS and WinIATS and
allocates the data to defined strata. The overall variable sample size was calculated for the combined
systems to produce a point estimate with a 95% confidence interval and a margin of error of +/- 2.5%.
Samples were then randomly selected using statistical software from each system’s population as a whole.
Each payment within each stratum had an equal probability of selection.
On a monthly basis, DFAS sampled vouchers from DTS stratified by Component (i.e., Army, Navy,
Marine Corps, Air Force, and other DoD Components) and vouchers from WinIATS stratified by travel
type (i.e., Active, Reserve, Casualty, Contingency, Civilian Permanent Change of Station, other DoD
Component, International Military Education and Training, Military Permanent Change of Station, Navy
Reserve Officers' Training Corps, and Navy Travel). In addition, each population was further stratified by
dollar amount.
DFAS statisticians selected a random sample and the Post-pay Review and Analysis team reviewed
the samples and calculated estimates of improper payments. Furthermore, to form the overall DoD Travel
Pay improper payments estimate, the DFAS DTS and WinIATS improper payment estimates were
combined with the Army’s WinIATS estimates of overseas travel, the Navy’s WinIATS estimate, the
Air Force’s Reserve Travel System estimate, and the Marine Corps’ WinIATS estimate.

Other Information
VII. Risk Assessment

OMB Circular No. A-123, Appendix C requires agencies to review all programs and activities and
assess their risk for improper payments. Agencies are required to institute a systematic method of reviewing
all programs to determine whether the programs are or are not susceptible to significant improper
payments 15. Improper payment reviews or risk assessments may use qualitative or quantitative methods.
If an agency determines that a program or activity is not susceptible to significant improper payments, the
agency must re-assess that program’s improper payment risk at least once every three years. Conversely,
if an agency determines a program to be susceptible to significant improper payments, the agency is
required to estimate and report improper payments for that program annually.
Programs already reporting an annual improper payment estimate in accordance with
OMB Circular No. A-123, Appendix C requirements do not need to perform an additional improper
payment risk assessment to comply with IPERA requirements, as the quantitative risk assessment method
used for reporting the annual estimate fulfills the risk assessment requirement under IPERA. In FY 2019,
the Department reported improper payment estimates for each of its eight programs. In addition, the
Department performed risk assessments on three other programs: Academy Cadet Pay, Transportation of
Things, and Government Purchase Card.
Academy Cadet Pay
In FY 2019, the Department conducted an improper payments risk assessment on payments made
to academy cadets at U.S. service academies from the Military Personnel appropriation. Outlays for
academy cadets are approximately $15 million per month (i.e., $180 million annually). These payments
are fundamentally different from regular payroll payments to Military Service members; therefore, they are
evaluated as a separate program from the Military Pay program for IPERA purposes. Based on the testing
results, the Department concluded that payments to academy cadets did not meet the OMB thresholds for
significant improper payments and are not required to be tested annually. The Academy Cadet Pay program
will be reported as a separate program in FY 2020 and it will be tested and assessed for risk at least once
every three years.
Transportation of Things
In FY 2019, the Department assessed the adequacy of the post-payment audits performed by the
General Services Administration (GSA) on DoD Transportation of Things Payments.
Title 31, United States Code, section 3726 (31 U.S.C. §3726) gives GSA the authority and responsibility to
audit and settle all federal payments for transportation. The GSA Transportation Audits Division conducts
post-payment audits on all transportation payments (and supporting documentation) related to freight
service, foreign and domestic shipping of household goods, pipeline, rail, and ocean provided by the
Department. GSA reviews DoD transportation payments for overcharges only. GSA finances their post-
payment audit contract and audit-related functions with overpayments collected from the transportation
payments previously paid by the Department and other federal agencies. GSA does not test for
underpayments during their post-payment audits and they only conduct a limited review of DoD small
parcel shipments. Based on the assessment of the GSA post-payment audits conducted by the GSA
Transportation Audits Division, the Department, in coordination with the DoD Office of Inspector General,
15
“Significant improper payments” are defined as gross annual improper payments (i.e., the total amount of
overpayments and underpayments) in the program exceeding (1) both 1.5% of program outlays and $10 million of
all program or activity payments made during the fiscal year reported or (2) $100 million (regardless of the improper
payment percentage of total program outlays).

Other Information
concluded that the reviews adequately test DoD Transportation of Things payments for overcharges and
can be relied upon for DoD IPERA reporting purposes. As a result, the Department will not perform
additional testing on Transportation of Things payments. Beginning in FY 2020, the Department will report
the improper payment testing results produced and supplied by GSA as a part of the Payment Integrity
program. Additionally, the Department will work through the U.S. Transportation Command to assess the
risk of underpayments and improper payments related to small parcel shipments 16.
Government Purchase Card
In FY 2019, the Department initiated an improper payments risk assessment on government
purchase card payments. The risk assessment is ongoing and it will be concluded in FY 2020. As such,
the results of the risk assessment will be reported in the DoD Agency Financial Report for FY 2020.
The amphibious dock landing ship USS Ashland (LSD 48) launches a Rolling Airframe Missile (RAM) during a missile exercise (MSLEX) in the Pacific Ocean,
March 16, 2019.
U.S. Navy photo by Mass Communication Specialist 2nd Class Markus Castaneda
16
Small parcel shipments typically weigh under 70 lbs. per shipment, are not shipped on pallets, and are not shipped
with private courier companies.

Other Information
Fraud Reduction Report

The Fraud Reduction and Data Analytics Act of 2015 (FRDAA) was enacted on June 30, 2016 to
help improve federal agencies’ financial and administrative controls, implement procedures to assess and
mitigate fraud risks, and to improve federal agencies’ development and use of data analytics for the
purposes of preventing, detecting, and responding to fraud. Each agency is required to report its progress
in implementing: (1) the financial and administrative controls; (2) the fraud risk principle in the
Government Accountability Office (GAO) Standards for Internal Control in the Federal Government
(“Green Book”); and (3) management of fraud risk in accordance with OMB Circular No. A-123.
Additionally, in July 2015, GAO issued Report No. GAO-15-593SP, A Framework for Managing Fraud
Risks in Federal Programs, providing leading practices for mitigating fraud risks and enhancing program
integrity.
In response to these requirements, the Office of the Under Secretary of Defense (Comptroller)
(OUSD(C)) provided fraud expertise and expanded guidance to assist the DoD Components in performing
their fraud risk assessment. OUSD(C) is responsible for the issuance of guidance and oversight of FRDAA
compliance across the Department. In FY 2019, the Department led the following activities related to fraud
risk management:
• Improved communication across the Department to increase awareness through the publication of
a periodic newsletter. This is provided to all internal control and fraud coordinators across each
Component and includes updates on fraud risk management initiatives, high-risk fraud areas, and
communication platforms to report potential fraud.
• Leveraged the individual DoD Component fraud risk assessments to develop a consolidated
Department-wide fraud risk register, which provides an inventory of fraud risks at the DoD
Component level, as well as an opportunity to facilitate the identification of fraud risks that may be
systemic across the Department. Through this effort, OUSD(C) has identified potential fraud risks
across payroll, beneficiary payments, grants, large contracts, information technology and services,
asset safeguards, and the purchase and travel card programs. The Department-wide fraud risk
register serves as a baseline tool for managing risks and corresponding mitigation strategies.
• Piloted a data-driven approach that focused on government purchase card data and provided
insights into potential fraudulent transactions for research by subject matter experts across the
Department. As a result of the analysis performed, fraud indicators were applied to the data to
develop views to show different key performance indicators and visualizations of merchant and
cardholder information. The data-driven framework leveraged for this pilot can be scaled across
the DoD enterprise and expanded to incorporate additional fraud schemes for high-risk areas.
• Identified Department-wide fraud control gaps to incorporate into FY 2020 guidance to help
Components improve their fraud internal control environment.
• Participated in the FY 2019 GAO audit engagement related to risk factors associated with
contractor ownership. As part of this audit, GAO reviewed the Department’s fraud risk and control
assessments that were piloted during FY 2018 and provided recommendations for improvement.
The Department reviewed this final FY 2019 GAO report and has planned to expand current DoD
risk assessment guidance to include additional fraud schemes. Going forward, the Department will
continue to apply a risk-based approach in prioritizing high risk fraud areas for developing
mitigation plans.

Other Information
In addition, each of the DoD Components have a shared responsibility in preventing, detecting, and
responding to potential fraud. The Components are the risk owners for their individual programs and must
establish policies, procedures, and mechanisms to comply with risk management and internal control
requirements to manage and respond to fraud risk. Examples of mechanisms used by the Components to
manage fraud risk include:
• Monitoring and evaluating controls through the Enterprise Risk Management and Internal Controls
program to provide assurance that Components are effectively preventing, detecting, and
responding to potential fraud. To assist Components with this effort, the Department added an
assertion statement to the Statement of Assurance Execution Handbook for the Components to
confirm that they have conducted an assessment of entity-level controls, including fraud controls,
in accordance with the Green Book, OMB Circular No. A-123, the FRDAA, and the GAO Fraud
Risk Management Framework.
• Conducting individual fraud control and risk assessments to establish a baseline for their respective
fraud risk management programs. Components are able to leverage the results of the fraud control
and fraud risk assessments to develop a remediation plan to mitigate identified fraud control gaps
and fraud risks.
Looking ahead, the Department will lead the coordination of all fraud risk efforts through the
development of a Fraud Task Force. This Task Force will consist of enterprise-level fraud risk points of
contact for each high-risk fraud area identified. The Department will continue to build its Fraud Risk
Management Strategy to include leading practices, trends, fraud schemes and areas of opportunity to help
mature the DoD-wide fraud risk program. Inputs obtained from the annual fraud risk assessments and fraud
control assessments, as well as insights gained from the data-driven fraud activities will continue to inform
focus areas and training topics that will influence the Fraud Risk Management Strategy. In addition, the
Department will establish a communications channel to proactively monitor high-risk fraud areas as
identified by key stakeholders including the DoD Office of the Inspector General and GAO. The
Department aims to finalize and disseminate the Department-wide Fraud Risk Management Strategy in
FY 2020.
U.S. Air Force A-10 Thunderbolt IIs fire flares while breaking away after aerial refueling from a KC-135 Stratotanker assigned to the 340th
Expeditionary Aerial Refueling Squadron out of Kandahar Airfield, Afghanistan, Aug. 15, 2019.
U.S. Air Force photo by Staff Sgt. Keifer Bowes

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Reduce the Footprint

Consistent with Section 3 of OMB Memorandum M-12-12, OMB Management Procedures
Memorandum No. 2015-01, and the National Strategy for the Efficient Use of Real Property, the
Department sets annual targets to reduce the total square footage of domestic office and warehouse
inventory compared to the FY 2015 baseline as part of the annual Real Property Efficiency Plan submission
to OMB and the General Services Administration. Exhibit 28 and Exhibit 29 present the Department’s
Reduce the Footprint comparisons of FY 2018 office and warehouse square footage and operations and
maintenance costs to the FY 2015 baseline.
Exhibit 28. Reduce the Footprint Baseline Comparison
FY 2015 Change
FY 2018
Square footage Baseline (FY 2018 - FY 2015 Baseline)
(in millions)
339.3 345.5 6.2
Through FY 2018, the Department’s office and warehouse square footage increased slightly,
primarily resulting from the Department’s audit remediation efforts. Tests of existence and completeness
over the Department’s General Property, Plant and Equipment balances led to the discovery of assets
(including offices and warehouses) that were not previously reported or not reported correctly in the
Department’s accounting records. While the correction of these errors resulted in increased asset account
balances, it also provided DoD management with more accurate data for use in decision making.
Additionally, the inclusion of several facility code categories in the calculation of office and warehouse
square footage that were not previously included also contributed to the increase in reported square footage.
Despite the reported increase, the Department disposed of over 1.2 million square feet of office and
warehouse assets during FY 2018. The Department plans to achieve further reductions in square footage
over the next five years through the construction of new, more efficient assets to eliminate excess space no
longer needed to meet mission requirements.
Exhibit 29. Reporting of Estimated Operation and Maintenance Costs – Owned and Direct Lease Buildings
FY 2018 Change
Operation and FY 2018
Reported Costs (FY 2018 - FY 2015 Baseline)
Maintenance
Costs
($ in millions) $ 829.5 $ 989.3 $ 159.8
Through FY 2018, the Department’s estimated annual operation and maintenance costs of its
owned and direct-leased facilities increased more than $159 million from the FY 2015 baseline. This is
partially attributable to increases in General Property, Plant, and Equipment balances resulting from the
Department’s correction of existence and completeness errors. The Department’s operation and
maintenance costs are funded, managed, and disbursed at the base or installation level as opposed to the
asset level (e.g., by facility). As a result, the Department is not currently able to trace the actual operations
and maintenance costs associated with its office and warehouse inventory at the asset level and must rely
on estimates mathematically derived from the allocation of base or installation level costs to all of the
various facilities contained therein. As the Department’s office and warehouse inventory represents less
than 17% of the total DoD real property footprint, changes in the calculated allocation of operations and
maintenance costs may potentially be driven by multiple factors other than office and warehouse square
footage.

Other Information
Civil Monetary Penalty Adjustment for Inflation

The Federal Civil Penalties Inflation Adjustment Act Improvements Act of 2015 (the 2015 Act),
which amended the Federal Civil Penalties Inflation Adjustment Act of 1990 (Inflation Adjustment Act,
28 U.S.C. § 2461, note), requires federal agencies to annually adjust the level of civil monetary penalties
for inflation to improve their effectiveness and maintain their deterrent effect. The implementation of this
law helps deter violations of law; encourages corrective actions for existing violations; and helps prevent
fraud, waste, and abuse within the Department.
The Department’s civil monetary penalty adjustments are published as final rules in the
Federal Register separately for adjustments pertaining to the U.S. Army Corps of Engineers (USACE) and
those related to the remainder of the Department. Exhibit 30 provides the civil monetary penalties that the
Department may impose, the authority for imposing the penalty, the year enacted, the year of the latest
adjustment, and the current penalty level. Additional supporting details about these penalties are available
at Federal Register Volume 84, page 12098 (84 FR 12098), 84 FR 18979, and 84 FR 31493.
Exhibit 30. FY 2019 Civil Monetary Penalty Adjustments for Inflation
Latest
Penalty Statutory Year Current Penalty Sub-Agency / Location for
Year of
(Name or Description) Authority Enacted ($ amount or range) Bureau / Unit Penalty Updates
Adjustment
National Defense
Unauthorized Activities
Authorization Act for Department of the 84 FR 12098
Directed at or Possession of 2004 2019 $132,470
FY 2005, 10 U.S.C. § Navy (April 1, 2019)
Sunken Military Craft
113, note
Unlawful Provision of Defense Health 84 FR 12098
10 U.S.C. §1094(c)(1) 1985 2019 $11,632
Health Care Agency (April 1, 2019)
$6,878
(First Offense)
Wrongful Disclosure - Defense Health 84 FR 12098
10 U.S.C. §1102(k) 1986 2019
Medical Records $45,854 Agency (April 1, 2019)
(Subsequent
Offense)
Violation of the Pentagon

Deputy Chief
Reservation Operation and 84 FR 12098
10 U.S.C. §2674(c)(2) 1990 2019 $1,895 Information
Parking of Motor Vehicles (April 1, 2019)
Officer
Rules and Regulations
Violation Involving False Office of the 84 FR 12098

31 U.S.C. §3802(a)(1) 1986 2019 $11,463
Claim Inspector General (April 1, 2019)
Violation Involving False Office of the 84 FR 12098
31 U.S.C. §3802(a)(2) 1986 2019 $11,463
Statement Inspector General (April 1, 2019)
Class I Civil
$21,934 per
Administrative Penalties Clean Water Act,
violation, with a U.S. Army Corps 84 FR 18979
for Violations of Clean 33 U.S.C. 1987 2019
maximum of of Engineers (May 3, 2019)
Water Act Section 404 §1319(g)(2)(A)
$54,833
Permits
Judicially Imposed Civil
Maximum of
Penalties for Violations of Clean Water Act, U.S. Army Corps 84 FR 18979
1987 2019 $54,833 per day for
Clean Water Act Section 33 U.S.C. §1344(s)(4) of Engineers (May 3, 2019)
each violation
404 Permits
Civil Administrative
Penalties for Violations of National Fishing Maximum of
U.S. Army Corps 84 FR 18979
Section 205(e) of the Enhancement Act, 1984 2019 $24,017 per
of Engineers (May 3, 2019)
National Fishing 33 U.S.C. §2104(e) violation
Enhancement Act
Violations of the Rivers Maximum of

U.S. Army Corps 84 FR 31493
and Harbors Appropriation 33 U.S.C. §555 1986 2019 $5,732 per
of Engineers (July 2, 2019)
Act of 1922 violation

FY 2019
Appendices
Appendix A: Reporting Entity A-1

Appendix B: Acronyms and
Abbreviations B-1
Appendix C: Index of Figures,
Charts, and Tables C-1
Drill Sergeants Save Family From Burning Vehicle
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Appendix A
Appendix A – Reporting Entity

This appendix provides a list of the DoD Components that comprise the Department’s reporting
entity for the purposes of the consolidated/combined financial statements.
DoD Components Required to Prepare Financial Statements in Accordance with OMB Bulletin No. 19-03
DoD Component Financial Statements

• Department of the Army, General Fund https://www.asafm.army.mil/Audit/
• Department of Army, Working Capital Fund
https://www.publications.usace.army.mil/USACE-
• U.S. Army Corps of Engineers Civil Works Program
Publications/Miscellaneous/
• U.S. Navy, General Fund https://www.secnav.navy.mil/fmc/fmo/Pages/Financial-Reports.aspx
• Department of Navy, Working Capital Fund
• U.S. Marine Corps, General Fund https://www.hqmc.marines.mil/pandr
https://www.saffm.hq.af.mil/FM-Resources/Air-Force-Annual-
• Department of Air Force, General Fund
Financial-Statement/
• Department of Air Force, Working Capital Fund
https://comptroller.defense.gov/Portals/45/Documents/afr/fy2019/Do
• Military Retirement Fund
D_Components/2019_AFR_MRF.pdf
Additional Consolidated/Combined DoD Components
DoD Component
Agency-Wide Component
Chemical Biological Defense Program
Consolidated Defense Health Programs
Defense Advanced Research Projects Agency
Defense Commissary Agency, General Fund
Defense Commissary Agency, Working Capital Fund
Defense Contract Audit Agency
Defense Contract Management Agency
Defense Finance and Accounting Service, General Fund
Defense Finance and Accounting Service, Working Capital Fund
Defense Health Agency - Contract Resource Management
Defense Information Systems Agency, General Fund
Defense Information Systems Agency, Working Capital Fund
Defense Logistics Agency National Defense Stockpile Trust Fund
Defense Logistics Agency, General Fund
Defense Logistics Agency, Working Capital Fund
Defense Security Cooperation Agency
Defense Technical Information Center
Defense Threat Reduction Agency
Department of Defense Education Activity
Department of Defense Office of Inspector General
DoD Component Level Accounts
DoD Medicare-Eligible Retiree Health Care Fund
Joint Chiefs of Staff
Medicare - Eligible Retiree Health Care Fund Payment (Pass Through Account)
Military Retirement Fund Payment (Pass Through Account)
U.S. Department of Defense Agency Financial Report for FY 2019 | A-1

Appendix A
DoD Component
Missile Defense Agency
Other Defense Activities - Burden Sharing Account by Foreign Allies, Defense
Other Defense Activities - Business Transformation Agency
Other Defense Activities - Defense Acquisition University
Other Defense Activities - Defense Cooperation Account
Other Defense Activities - Defense Gift Fund
Other Defense Activities - Defense Human Resources Activity
Other Defense Activities - Defense Media Activity
Other Defense Activities - Defense Prisoner of War/Missing In Action Accounting Agency
Other Defense Activities - Defense Security Service
Other Defense Activities - Defense Technology Security Administration
Other Defense Activities - Department of Defense Education Benefits Fund
Other Defense Activities - Director, Operational Test and Evaluation
Other Defense Activities - Emergency Response Fund, Defense
Other Defense Activities - Homeowners Assistance Fund
Other Defense Activities - Host Nation Support for U.S. Relocation Activities, Defense
Other Defense Activities - Military Housing Privatization Initiative
Other Defense Activities - Mutually Beneficial Activities Defense Wide
Other Defense Activities - National Security Education Trust Fund
Other Defense Activities - Office of Economic Adjustment
Other Defense Activities - Support for U.S. Relocation to Guam Activities
Other Defense Activities - Voluntary Separation Incentive Trust Fund
Other Defense Activities Working Capital Funds (Pass Through Account)
Other TI-97 Funds Provided to the Air Force by the Office of the Secretary of Defense
Other TI-97 Funds Provided to the Army by the Office of the Secretary of Defense
Other TI-97 Funds Provided to the Navy by the Office of the Secretary of Defense
U.S. Special Operations Command
U.S. Transportation Command
Washington Headquarters Services
A U.S. Marine Corps assault amphibious vehicle (AAV), assigned to the 31st Marine
Expeditionary Unit (MEU), approaches the well deck of the amphibious assault ship USS Wasp
(LHD 1) in the Philippine Sea, Jan. 14, 2019.
U.S. Navy photo by Mass Communication Specialist 1st Class Daniel Barker
A-2 | U.S. Department of Defense Agency Financial Report for FY 2019

Appendix B
Appendix B – Acronyms and Abbreviations

Acronym Definition
AC Actual Cost
ACWA Assembled Chemical Weapons Alternatives
ADA Antideficiency Act
ADDP Active Duty Dental Program
AF Air Force
AFFF Aqueous film-forming foam
AF-IPPS Air Force Integrated Personnel and Pay System
AFR Agency Financial Report
AO Approving Official
APP Annual Performance Plan
APSR Accountable property system of record
ASD Assistant Secretary of Defense
ASP Agency Strategic Plan
ATSD Assistant to the Secretary of Defense
ATSD(PA) Assistant to the Secretary of Defense (Public Affairs)
AU Assessable Unit
BD/DR Building Demolition and Debris Removal
BEA Business Enterprise Architecture
BRAC Base Realignment and Closure
BRS Blended Retirement System
CAP Corrective Action Plan
CAP Contractor-Acquired Property
CBY Charge back year
CDO Chief Data Officer
CDRL Contract Data Requirements List
CE2T2 Combatant Commander Exercise and Engagement and Training Transformation
CERCLA Comprehensive Environmental Response, Compensation, and Liability Act
CIO DoD Chief Information Officer of the Department of Defense
CIP Construction in Progress
CJCS Chairman of the Joint Chiefs of Staff
CMC Commandant of the Marine Corps
CMO Chief Management Officer
CMR Cash Management Report
CNGB Chief of the National Guard Bureau
CNO Chief of Naval Operations
CO Certifying Official
COLA Cost of living adjustment
CONOPS Concept of Operations
COTS Commercial Off-The-Shelf
CPI Continuous Process Improvement
CPIM Consumer Price Index Medical
CRM Contract Resource Management
CSA Combat Support Agency
CSA Chief of Staff of the Army
CSAF Chief of Staff of the Air Force
CSRS Civil Service Retirement System
DAI Defense Agencies Initiative
DAO Departmental Accountable Official
DARPA Defense Advanced Research Projects Agency
DATA Act Digital Accountability and Transparency Act of 2014
DAWIA Defense Acquisition Workforce Improvement Act
DBS Defense Business Systems
DCAA Defense Contract Audit Agency
DCMA Defense Contract Management Agency
DEAMS Defense Enterprise Accounting and Management System
DeCA Defense Commissary Agency
DEOS Defense Enterprise Office Solution
DERP Defense Environmental Restoration Program
DFARS Defense Federal Acquisition Regulation Supplement
DFAS Defense Finance and Accounting Service
DHA Defense Health Agency
DHRA Defense Human Resources Activity
DIB Defense Industrial Base
DISA Defense Information Systems Agency
DJMS Defense Joint Military Pay System
DLA Defense Logistics Agency
U.S. Department of Defense Agency Financial Report for FY 2019 | B-1

Appendix B
Acronym Definition
DM Direct Method
DM&R Deferred Maintenance and Repairs
DNP Do Not Pay
DoD Department of Defense
DOL Department of Labor
DON Department of the Navy
DSCA Defense Security Cooperation Agency
DTD Direct Treasury Disbursing
DTMO Defense Travel Management Office
DTS Defense Travel System
E2E End-to-End
EBF DoD Education Benefits Fund
EBS Enterprise Business System
ECS E-Commerce System
EIC External Independent Contractor
EL Environmental Liabilities
EOU Excess, Obsolete, and Unservicable
ERM Enterprise Risk Management
ERM/ICP Enterprise Risk Management and Internal Control Program
ERP Enterprise Resource Planning
FAR Federal Acquisition Regulation
FASAB Federal Accounting Standards Advisory Board
FASB Financial Accounting Standards Board
FBwT Fund Balance with Treasury
FCI Facility Condition Index
FCRA Federal Credit Reform Act of 1990
FECA Federal Employees’ Compensation Act
FEDVIP Federal Employees Dental and Vision Insurance Program
FEGLI Federal Employee Group Life Insurance
FEHB Federal Employees Health Benefits
FERC Federal Energy Regulatory Commission
FERS Federal Employees Retirement System
FFATA Federal Funding Accountability and Transparency Act of 2006
FFMIA Federal Financial Management Improvement Act of 1996
FFRDC Federally Funded Research and Development Centers
FGB Financial Improvement Audit Remediation Governance Board
FLTCIP Federal Long Term Care Insurance Program
FM Financial Management
FMFIA Federal Managers’ Financial Integrity Act of 1982
FMR Financial Management Regulation
FMS Foreign Military Sales
FMSC Financial Management Support Center
FR Financial Report of the U.S. Government
FRDAA Fraud Reduction and Data Analytics Act of 2015
FRM Fraud Risk Management
FUSRAP Formerly Utilized Sites Remedial Action Program
FY Fiscal Year
FYDP Future Years Defense Program
GAAP Generally Accepted Accounting Principles
GAO Government Accountability Office
GC General Counsel
GCSS-A Global Combat Support System – Army
GCSS-MC Global Combat Support System – Marine Corps
GE General Equipment
GFEBS General Fund Enterprise Business System
GFP Government Furnished Property
GL General Ledger
GMRA Government Management Reform Act of 1994
GPP&E General Property Plant & Equipment
GPRA Government Performance and Results Act of 1993
GPRAMA GPRA Modernization Act of 2010
GSA General Services Administration
GT&C General Terms and Conditions
HC Historical Cost
HR Human Resources
I&RP Inventory and Related Property
ICP Internal Control Program
IGT Intragovernmental Transactions
IP Improperly Paid
B-2 | U.S. Department of Defense Agency Financial Report for FY 2019

Appendix B
Acronym Definition
IPA Independent Public Accounting
IPERA Improper Payments Elimination and Recovery Act of 2010
IPERIA Improper Payments Elimination and Recovery Improvement Act of 2012
IPIA Improper Payments Information Act of 2002
IPPS Integrated Personnel Pay System
IPPS-A Integrated Personnel Pay System – Army
IRP Installation Restoration Program
ISIS Islamic State of Iraq and Syria
IT Information Technology
ITGC Information Technology General Controls
IUS Internal Use Software
JCS Joint Chiefs of Staff
JV Journal Voucher
KSD Key Supporting Documentation
LAC Latest Acquisition Cost
LCM Lower of Cost or Market
LMP Logistics Modernization Program
MAC Moving Average Cost
MCSC Managed Care Support Contracts
MDA Missile Defense Agency
MERHCF Medicare-Eligible Retiree Health Care Fund
MHPI Military Housing Privatization Initiative
MHS Military Health System
Mildeps Military Departments
MMRP Military Munitions Response Program
MPT&E Manpower Personnel Training and Education
MRF Military Retirement Fund
MRHB Military Retirement Health Benefits
MTF Military Treatment Facilities
MWR Morale, Welfare, and Recreation
NAF Nonappropriated Fund
NAFI Nonappropriated Fund Instrumentality
NATO North Atlantic Treaty Organization
NDAA National Defense Authorization Act
NDBOP National Defense Business Operations Plan
NDS National Defense Strategy
NFR Notice of Findings and Recommendations
NIPR Non-classified Internet Protocol Router
No. Number
NOAA National Oceanic and Atmospheric Administration
NP2 Navy Personnel and Pay System
NPV Net present value
NRV Net Realizable Value
NWI Non-tactical Warehouse Integration
O&M Operation and Maintenance
OACT Office of the Actuary
OCMO Office of the Chief Management Officer
OCO Overseas Contingency Operations
OCONUS Outside of the Continental United States
ODCFO Office of the Deputy Chief Financial Officer
ODNI Office of the Director of National Intelligence
OEP Organizational Execution Plan
OFF Oracle Federal Financials
OIG Office of the Inspector General
OM&S Operating Material and Supplies
OMB Office of Management and Budget
OPEB Other Post-employment Benefits
OPM Office of Personnel Management
ORB Other Retirement Benefits
OSD Office of the Secretary of Defense
OUSD(C) Office of the Under Secretary of Defense (Comptroller)
P2P Procure-to-Pay
PCS Permanent Change of Station
PFAS Poly-and Per-Fluoronated Alkyl Substances
PFOA Perfluorooctanoic Acid
PFOS Perfluorooctane Sulfonate
PP Proper Payment / Properly Paid
PP&E Property, Plant and Equipment
PPA Prompt Payment Act
U.S. Department of Defense Agency Financial Report for FY 2019 | B-3

Appendix B
Acronym Definition
PPBE Planning, Programming, Budgeting, and Execution
R&A Retired and Annuitant
R&D Research and Development
R2F Readiness Recovery Framework
RCRA Remedial Action Cost Engineering Requirements
RDT&E Research, Development, Test and Evaluation
RFQ Request for Quote
RMF Risk Management Framework
RP Replacement Price
RSI Required Supplementary Information
RSSI Required Supplementary Stewardship Information
RTS Reserve Travel System
S/L Straight Line Method
SAA Security Assistance Accounts
SAMM Security Assistance Management Manual
SAO Senior Accountable Official
SARA Superfund Amendments and Reauthorization Act of 1986
SBR Statement of Budgetary Resources
SCNP Statement of Changes in Net Position
SCR System Change Request
SDP Savings Deposit Program
SFFAS Statement of Federal Financial Accounting Standards
SFIS Standard Financial Information Structure
SIPR Secret Internet Protocol Router
SLOA Standard Line of Accounting
SMS Sustainment Management System
SNC Statement of Net Cost
SOC System and Organizational Control
SOD Statement of Differences
SOF Special Operations Forces
SOP Standard Operating Procedures
SP Standard Price
SSAE Statement of Standards for Attestation Engagements
STB Standard Transaction Broker
TED TRICARE Encounter Data
TFM Treasury Financial Manual
TNC Treasury Nominal Coupon
TSP Thrift Savings Plan
TTH Time to Hire
U.S. United States
U.S.C. United States Code
UoT Universe of Transactions
USACE United States Army Corps of Engineers
USD Under Secretary of Defense
USD(A&S) Under Secretary of Defense (Acquisition and Sustainment)
USD(C)/CFO Under Secretary of Defense (Comptroller)/Chief Financial Officer
USD(I) Under Secretary of Defense (Intelligence)
USD(P&R) Under Secretary of Defense (Personnel and Readiness)
USD(P) Under Secretary of Defense (Policy)
USD(R&E) Under Secretary of Defense (Research and Engineering)
USSGL United States Standard General Ledger
USSOCOM United States Special Operations Command
USSPACECOM United States Space Command
VA Department of Veterans Affairs’
VCJCS Vice Chairman of the Joint Chiefs of Staff
VSI Voluntary Separation Incentive
WCF Working capital funds
WinIATS Windows Integrated Automated Travel System
B-4 | U.S. Department of Defense Agency Financial Report for FY 2019

Appendix C
Appendix C – Index of Figures, Tables, and Exhibits

Management’s Discussion and Analysis Figures
Figure Page Number

Figure 1. Department of Defense Organizational Structure 3
Figure 2. Office of the Secretary of Defense Principal Staff Assistants 4
Figure 3. Reserve Components – Reserve and National Guard 5
Figure 4. Defense Agencies and DoD Field Activities 6
Figure 5. Combatant Commands 7
Figure 6. FY 2019 DoD Budget Authority 8
Figure 7. DoD Performance Measurement and Evaluation Process 15
Figure 8. DoD Strategic Goals and Objectives 16
Figure 9. Strategic Goal 1 Performance Result Summary 17
Figure 12. Summary of Total Assets 28
Figure 13. Summary of Total Liabilities 29
Figure 14. Liabilities Covered/Not Covered by Budgetary Resources 29
Figure 15. Summary of Net Cost of Operations 30
Figure 16. Composition of DoD Total Budgetary Resources 33
Figure 17. Trend in DoD Budget Authority 33
Figure 18. Financial Performance Summary 34
Figure 19. FY 2019 Audit Structure and Results 35
Figure 20. FY 2018 DoD NFRs and CAPs as of November 15, 2019 37
Figure 21. DoD Integrated Business Framework 43
Figure 22. DoD FM Systems Improvement Initiatives 44
Financial Section Tables
Table Page Number

Table 1. Principal Financial Statements 75
Table 2. Non-Entity Assets 95
Table 3. Status of Fund Balance with Treasury 96
Table 4. Cash and Other Monetary Assets 98
Table 5. Investments and Related Interest 99
Table 6. Accounts Receivable 101
Table 7A. Summary of Direct Loans and Loan Guarantees 102
Table 7B. Direct Loans Obligated After FY 1991 103
Table 7C. Total Amount of Direct Loans Disbursed 103
Table 7D.1. Subsidy Expense for New Direct Loans Disbursed 103
Table 7D.2. Direct Loan Modifications and Reestimates 103
Table 7D.3. Total Direct Loan Subsidy Expense 104
Table 7E. Budget Subsidy Rates for Direct Loans for the Current Year 104
Table 7F. Schedule for Reconciling Subsidy Cost Allowance Balances for Post FY 1991
104
Direct Loans
Table 7G. Defaulted Guaranteed Loans 105
U.S. Department of Defense Agency Financial Report for FY 2019 | C-1

Appendix C
Table Page Number

Table 7H.1. Guaranteed Loans Outstanding 105
Table 7H.2. New Guaranteed Loans Disbursed 105
Table 7I. Liability for Loan Guarantees 105
Table 7J.1. Subsidy Expense for New Loan Guarantees 106
Table 7J.2. Modifications and Reestimates 106
Table 7J.3. Total Loan Guarantee: 106
Table 7K. Budget Subsidy Rates for Loan Guarantees for the Current Year 106
Table 7L. Schedule for Reconciling Loan Guarantee Liability Balances 107
Table 8A. Inventory and Related Property 108
Table 8B. Inventory Categories 108
Table 8C. OM&S Categories 109
Table 8D. Stockpile Materiel Categories 110
Table 9A. Major General PP&E Asset Classes 112
Table 9B. Heritage Assets 114
Table 9C. Stewardship Land 114
Table 10. Other Assets 115
Table 11. Liabilities Not Covered by Budgetary Resources 116
Table 12. Debt 118
Table 13A. Military Retirement and Other Federal Employment Benefits Liability 119
Table 13B. Reconciliation of Beginning and Ending Liability Balances for Military 120
Retirement and Other Federal Employment Benefits
Table 13C. Actuarial Assumptions for Military Retirement Pension Liability 122
Table 13D. Actuarial Assumptions for MRHB Liability 122
Table 13E. Actuarial Assumptions for MERHCF Liability 123
Table 13F. Actuarial Assumptions for FECA Liability 124
Table 14. Environmental and Disposal Liabilities 125
Table 15. Other Liabilities 128
Table 16A. Entity as Lessee – Assets Under Capital Lease 131
Table 16B. Future Payments Due for Non-Cancelable Operating Leases 132
Table 17. Summary of Legal Contingent Liabilities 133
Table 18A. Combined Balance Sheet – Funds from Dedicated Collections 135
Table 18B. Combined Statement of Net Cost – Funds from Dedicated Collections 136
Table 18C. Combined Statement of Changes in Net Position – Funds from Dedicated 136
Collections
Table 19. Costs and Exchange Revenue by Major Program 139
Table 20A. Reconciliation of Appropriations on the Statement of Budgetary Resources to 142
Appropriations Received on the Statement of Changes in Net Position
Table 20B. Reconciliation of Combined Dedicated Collections and Other Funds to 143
Consolidated Dedicated Collections and Other Funds
Table 21A. Available Borrowing/Contract Authority 144
Table 21B. Budgetary Resources Obligated for Undelivered Orders at the End of the 145
Period
Table 21C. Explanation of Differences Between the SBR and the Budget of the U.S. 146
Government
Table 23A. Schedule of Fiduciary Activity 150
Table 23B. Schedule of Fiduciary Net Assets 150
Table 24. Reconciliation of the Net Cost of Operations to Net Outlays 151
Table 25. Summary of Contributions 154
Table 27A. Reclassification of Balance Sheet 159
C-2 | U.S. Department of Defense Agency Financial Report for FY 2019

Appendix C
Table Page Number

Table 27B. Reclassification of Statement of Net Cost 161
Table 27C. Reclassification of Statement of Changes in Net Position 162
Table 28A. Effect on FY 2019 Beginning Cumulative Results of Operations and 164
Unexpended Appropriations
Table 28B. Effect on FY 2018 Comparative Balances 164
Table RSSI-1. Non-Federal Physical Property Investments 165
Table RSSI-2. Investments in Research and Developments 166
Table RSI-1. Real Property Deferred Maintenance and Repairs (excluding Military Family 168
Housing)
Table RSI-2. Real Property Deferred Maintenance and Repairs (Military Family Housing 169
only)
Table RSI-3. Equipment Deferred Maintenance and Repairs 170
Table RSI-4. Combining Statement of Budgetary Resources (Budgetary) 171
Table RSI-5. Combining Statement of Budgetary Resources (Non-Budgetary Credit 173
Reform Financing Account)
Note: The title “Table 22” is not used, as the table titles in the Financial Section are aligned to the related Note to the Financial Statements and
Note 22 does not contain a table.
Other Information Exhibits
Exhibit Page Number

Exhibit 1. Summary of Financial Statement Audit 182
Exhibit 2. FY 2019 Effectiveness of Internal Control over Financial Reporting (FMFIA §2) 184
Exhibit 3. Internal Control over Financial Reporting Corrective Action Plans 185
Exhibit 4. FY 2019 Effectiveness of Internal Controls over Operations (FMFIA §2) 191
Exhibit 5. Effectiveness of Internal Controls over Operations Corrective Action Plans 192
Exhibit 6. FY 2019 Compliance with Federal Financial Management System Requirements
197
(FMFIA §4)
Exhibit 7. FY 2019 Implementation of Federal Financial Management Improvements
197
(FFMIA §803(a))
Exhibit 8. Compliance with Federal Financial Management System Requirements
198
Corrective Action Plans
Exhibit 9. FY 2019 Estimated Proper and Improper Payments 201
Exhibit 10. FY 2019 Estimated Improper Payments Monetary and Non-Monetary Loss 201
Exhibit 11. FY 2019 Total Improper Payments Reported by Program 203
Exhibit 12. FY 2019 Estimated Improper Payment 204
Exhibit 13. FY 2019 Improper Payment Classification (Monetary Loss and Non-Monetary
207
Loss, and Monetary Loss Control)
Exhibit 14. FY 2019 Improper Payment Out Year Projections 208
Exhibit 15. FY 2019 Improper Payment Root Cause Category Matrix 209
Exhibit 16. FY 2019 Military Health Benefits Estimated Improper Payments by OMB Root
211
Cause Category
Exhibit 17. Military Health Benefits Summary Corrective Action Plans 2012
Exhibit 18. FY 2019 Military Pay Estimated Improper Payments by OMB Root Cause
213
Category
Exhibit 19. Military Pay Summary Corrective Action Plans 215
U.S. Department of Defense Agency Financial Report for FY 2019 | C-3

Appendix C
Exhibit Page Number

Exhibit 20. FY 2019 Military Retirement Estimated Improper Payments by OMB Root
216
Cause Category
Exhibit 21. Military Retirement Summary Corrective Action Plans 217
Exhibit 22. FY 2019 Travel Pay Estimated Improper Payments by OMB Root Cause
218
Category
Exhibit 23. DoD Travel Pay Summary Corrective Action Plans 219
Exhibit 24. FY 2019 Payment Recapture Audit Reporting 223
Exhibit 25. FY 2019 Overpayments Identified and Recaptured Outside of Payment
224
Recapture Audits
Exhibit 26. FY 2019 Disposition of Funds Recaptured Through Payment Recapture Audits 224
Exhibit 27. Aging of Outstanding Overpayments Identified Through Payment Recapture
224
Audits
Exhibit 28. Reduce the Footprint Baseline Comparison 239
Exhibit 29. Reporting of Estimated Operation and Maintenance Costs – Owned and Direct
239
Lease Buildings
Exhibit 30. FY 2019 Civil Monetary Penalty Adjustments for Inflation 240
A U.S. Soldier a takes part in a training event, showcasing for the secretary of the Army the skills Soldiers acquire and hone at Fort Benning, Georgia, Nov. 19, 2018.
U.S. Army photo by Patrick Albright
C-4 | U.S. Department of Defense Agency Financial Report for FY 2019

Acknowledgements
This Agency Financial Report was prepared with the energies and talents of many employees across the
Department of Defense. To these individuals, the Office of the Under Secretary of Defense (Comptroller)
would like to offer our sincerest thanks and acknowledgement. In particular, we would like to recognize
the following individuals for their contributions:
Mr. Ravi Agrawal Ms. Kim Laurance
Ms. Kellie Allison Ms. Calandra Layne
Ms. Yelena Baker Mr. Joseph Leonard
Mr. Brian Banal Mr. Marlon Moreira
Ms. Krystal Baranoski Mr. Charles Morse
Mr. Steven Birk Ms. Kandis Nicholas
Ms. Amy Bruins Ms. Glenda Scheiner
Mr. Gerald Davenport Ms. Anna Smith
Mr. Jeremiah Eidson Mr. Christopher Smith
Mr. Douglas Glenn Mr. Jeremy Stone
Ms. Jennifer Hill Ms. Erica Thomas
Ms. Cynthia Hufty Mr. Ned Torson
Ms. Mobola Kadiri Mr. Robert Weeden
Ms. Meron Laiketsion Mr. Scott Young

DEPARTMENT OF DEFENSE
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Washington, DC 20301‐1100
This document is published online at:

http://comptroller.defense.gov/odcfo/AFR2019.aspx

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Message from the Secretary of Defense ..................................................... v

MANAGEMENT’S DISCUSSION & ANALYSIS

Mission Overview ............................................................................. 1

On behalf of our nation’s sentinels serving at home and around the

Dr. Mark T. Esper

Management’s Discussion &

• Rebuilding military readiness and building a more lethal Joint Force;

U.S. Department of Defense Agency Financial Report for FY 2019 | 1

2 | U.S. Department of Defense Agency Financial Report for FY 2019

Figure 1. Department of Defense Organizational Structure

Office of the Secretary of Defense

U.S. Department of Defense Agency Financial Report for FY 2019 | 3

Figure 2. Office of the Secretary of Defense Principal Staff Assistants

The Joint Chiefs of Staff and the Joint Staff

4 | U.S. Department of Defense Agency Financial Report for FY 2019

Figure 3. Reserve Components – Reserve and National Guard

Defense Agencies and DoD Field Activities

U.S. Department of Defense Agency Financial Report for FY 2019 | 5

Figure 4. Defense Agencies and DoD Field Activities

6 | U.S. Department of Defense Agency Financial Report for FY 2019

Figure 5. Combatant Commands

U.S. Department of Defense Agency Financial Report for FY 2019 | 7

Operation and Maintenance (O&M) – FY 2019

8 | U.S. Department of Defense Agency Financial Report for FY 2019

U.S. Department of Defense Agency Financial Report for FY 2019 | 9

Illustrative Examples of Resources Expended in Support of the NDS

10 | U.S. Department of Defense Agency Financial Report for FY 2019

Modernizing Key Capabilities

U.S. Department of Defense Agency Financial Report for FY 2019 | 11

Strengthening Alliances and Attracting New Partners

12 | U.S. Department of Defense Agency Financial Report for FY 2019

Honoring the Commitment to DoD Personnel

U.S. Department of Defense Agency Financial Report for FY 2019 | 13

• Rebuild military readiness and build a more lethal Joint Force;

14 | U.S. Department of Defense Agency Financial Report for FY 2019

Enterprise Performance Management

U.S. Department of Defense Agency Financial Report for FY 2019 | 15

Summary of Strategic Goals, Objectives, and Performance Results

Strategic Goal Strategic Objective

1.1 – Restore military readiness to build a more lethal force

1.2 – Modernize key capabilities

1.3 – Enhance information technology and cybersecurity defense capabilities

1.6 – Ensure the U.S. technological advantage

1.7 – Evolve innovative operational concepts

Goal 2: 2.1 – Reform the Security Cooperation Enterprise

Strengthen Alliances and Attract

3.1 – Improve and strengthen business operations through a move to DoD-

3.5 – Harness and protect the National Security Base

• Exceeded: Actual performance more than 100% of target

16 | U.S. Department of Defense Agency Financial Report for FY 2019

U.S. Department of Defense Agency Financial Report for FY 2019 | 17

Illustrative Performance Results

18 | U.S. Department of Defense Agency Financial Report for FY 2019

Strategic Goal 2: Strengthen our Alliances & Attract New Partners

U.S. Department of Defense Agency Financial Report for FY 2019 | 19